The news in early 2024 that Macy’s was closing its store in San Francisco’s Union Square was like a one-two punch for the struggling city following the shuttering of the downtown Nordstrom a few months earlier.
Nearly two years later, Macy's is still open, and it could remain open for the near future as it considers what to do with its holdings that now span roughly 650,000 square feet.
The New York-based retail chain is partnering with San Francisco real estate firm TMG Partners to “explore the future potential” of redeveloping the downtown property at 170 O’Farrell St., which has been operating since World War II. The store will remain open during the assessment, a process that’s expected to take many months, according to a person familiar with the arrangement.
“Planning will be a long process and could include keeping retail at some level,” the person told CoStar News.
Macy’s said in a press release that the partnership was part of an “ongoing strategy to evaluate compelling options for its real estate portfolio.” The retail chain’s “strategic assessment” of the property with TMG will include exploring adaptive reuse and upgrades that “align with the needs of today’s office workers, residents, visitors, retail and local businesses,” the firms said. No applications for the property have been filed with the Planning Department.
The firms didn't specify what a redevelopment of the property might entail, but housing is a possibility, reports indicate. San Francisco is dotted with empty storefronts and vacant office buildings since the COVID-19 pandemic but, like other cities in California, remains in need of more affordable housing. Rents in San Francisco are rising faster than in any other city in the country, courtesy of the artificial intelligence boom, with the average currently above $3,300 per month and more than double the nation's average.
The city is supposed to build 82,000 housing units by 2031 to meet state requirements to help solve the state's housing shortage, yet the city permitted only 1,074 units in 2024, its lowest showing since the aftermath of the Great Recession.
No buyers
For now, the agreement suggests that Macy's isn’t planning to sell the property after all, at least not right now.
Macy's said Union Square shoppers would be able to enjoy holiday traditions including the annual holiday display windows featuring frolicking puppies and kittens courtesy of the San Francisco SPCA.
The city's downtown shopping district was suffering with low foot traffic and concerns of crime when Macy’s said it planned to sell and shutter the historic Union Square store as part of a nationwide string of cost-cutting that entailed shuttering around 150 underperforming stores. Executives stressed that the store wouldn’t close until Macy’s found a buyer.
Apparently, the right one never materialized.
Union Square has lost several stores in recent years, from locally based T-shirt sellers to national department store chains, in the wake of global forces such as the rise of e-commerce and fallout from the COVID-19 pandemic. The city’s premier retail district was among the hardest-hit neighborhoods in the hardest-hit city in the country following the pandemic, with a vacancy rate that soared from 9% in 2019 to about 22% by early 2025, more than five times the nationwide rate of just over 4%.
But in recent months, the narrative around the city’s central shopping district has begun to shift, as business and workers return to downtown amid the gathering excitement of the AI boom. The neighborhood retail vacancy rate has dipped in the past few months to 14.5%. Some business owners and brokers have credited the city’s business-friendly mayor, Daniel Lurie, an heir to the Levi Strauss denim fortune, for the comeback of the city’s commercial center.
'Creative things'
In an interview with the San Francisco Chronicle, which first reported the agreement with Macy's, TMG CEO Michael Covarrubias said his firm had been considering “a lot of creative things” for the property, adding: “Housing is important for downtown.”
Officials have proposed wide-ranging ideas from a soccer stadium to luring universities to build campuses in downtown San Francisco to reignite underused commercial real estate. City leaders have pushed to convert some of San Francisco’s millions of square feet of empty office space into much-needed housing, as other cities have done with varying degrees of success.
In the meantime, Union Square has been buoyed by several store openings. Spanish retailer Zara announced this year that it would open a new flagship downtown, near a location it had closed. Uniqlo, a brand that vacated a large storefront during the pandemic, is also returning to a new neighboring space.
TMG is one of the Bay Area’s most prolific developers, with a portfolio totaling more than 30 million square feet across Oakland, San Francisco and Silicon Valley, and it’s acquired several properties near Macy’s in recent months. Local media reported this year that the firm was interested in buying the Metreon mall, home to the city’s only IMAX movie theater and lone downtown Target. More recently, TMG partnered with another firm to buy a historic downtown office building.
Macy’s dominated Union Square at its peak in the 1990s, with a 1.1 million-square-foot footprint across its flagship at 170 O’Farrell St., the former I. Magnin Building at 90 Grant Ave. and the Macy’s Men’s store at 120 Stockton St. Since then, the former department store giant has downsized, shuttering scores of stores across the country in recent years and shrinking the Union Square complex.
The company also announced this year that it was closing Bloomingdale’s flagship San Francisco store, which it owns, at the beleaguered San Francisco Centre mall. The departure accelerated a chain of store closures that has left the mall virtually empty.