Evolution is nothing new for Union Square district, the onetime Civil War rally site that now ranks among the world's shopping meccas. The change under way today is a continual redefining of its boundaries, as storefronts climb like vines up Kearny Street and Grant Avenue and spread like roots toward Market and beyond.

Among the most recent developments, funky Italian fashion store Diesel is relocating into a building on Market at Stockton, where it plans to open during spring 2009. Crate & Barrel is scheduled to launch its CB2 furniture store, the fourth in the nation, across the street on Ellis later this month. And a handful of new restaurants and shops have opened or soon will on Yerba Buena Lane, next to the new Contemporary Jewish Museum, including men's store Hickey Freeman, Schoggi Imported Swiss Chocolates, the Press Club wine tasting room and an unnamed steakhouse.

"The shopping district is expanding," said Linda Mjellem, executive director of the Union Square Association, a trade group representing the area's retailers. "Union Square remains a very desirable place to do retail business."

Still, not all the change in the shopping district is positive. The Disney Store and CompUSA have shut their doors and West Coast Leather is holding a "store closing sale." At least four shop fronts on the prestigious 200 block of Post Street are empty, including Ann Taylor and Sharper Image.

"I've been in this business a long time and I've never seen that," said Ken Brownell, partner at Blatteis & Schnur, a retail brokerage firm and the developer that owns the building Diesel will occupy. He said the economic downturn is likely undercutting demand for luxury goods.

Union Square's overall retail vacancy rate stood at 9.35 percent in June, up from 5.75 percent at the end of 2007, according to Rhonda Diaz, vice president with San Francisco retail brokerage firm Terranomics. Average ground floor asking rents stand at $183 per square foot, flat from a year ago.

Brokers who specialize in the shopping district stress that those examples and figures reflect natural flux in the market and that deals are pending or complete for all of the high-profile spots. Morton's The Steakhouse, for instance, will take over more than half of the Disney space.

"These leases were coming up and it's an opportunity for some new tenants," said Kazuko Morgan of Cushman & Wakefield. "Demand is still strong, considering this economy."

The outward expansion of Union Square, and strength at least relative to the broader market, is due to several factors, industry observers say.

First, and most notably, tourists continue to descend on San Francisco in growing numbers, largely drawn by the weak U.S. dollar. The city welcomed 16.1 million visitors who spent $8.2 billion last year, an annual increase of 2.4 percent and 6.2 percent, respectively, according to the San Francisco Convention and Visitors Bureau.

"They're not only sightseeing, they're also carrying around a lot of bags," Diaz said. "They're shopping and eating."

Second, the $460 million expansion of the Westfield Shopping Centre and the addition of new, nearby condominiums like the Ritz-Carlton Club and Residences have drawn additional foot traffic to the area. All told, more than 50 major residential projects are completed, under construction or approved across the South of Market district.

Finally, the region's tech-heavy economy is holding up well relative to the state and nation. In the San Francisco metropolitan area, which includes Marin and San Mateo counties, unemployment stood at 4.6 percent in May, according to the California Employment Development Department. That's up from 4.2 percent in the prior month, but well below the state's jobless rate of 6.8 percent.

Retailers are attracted to Union Square because it's a place where they can both sell their wares and build their names, said Rob Hense, senior managing director of development for Chicago's Crate & Barrel.

"We just felt like it was ideal positioning for the brand," he said of the decision to locate CB2 in the shopping district. "There's a customer there that seems to appreciate contemporary style. There are great retailers all around us, the kind we really like to have as our neighbors."

As the district grows larger and adds a wider variety of shopping options, it's appealing to different types of people in assorted income brackets, said Vikki Johnson, president of Johnson Hoke Ltd., a San Francisco retail firm that represents landlords.

"Now you can come downtown from the suburbs and not feel that only your mother can shop, because there's nothing to do but go to Chanel and Tiffany," she said. "It's much more of a destination now for a broader base of people."

New store openings
Diesel, Crate & Barrel's CB2 furniture store and a handful of restaurants and stores in Yerba Buena Lane have recently opened or soon will. Among other recent or pending changes within the shopping district:

- Prada and Gucci will soon open new, larger venues on Post and Stockton, respectively.

- Upscale boutiques John Varvatos, Theory and Glory Chen set up shop on Maiden Lane, and Tory Burch soon will.

- Shoe store Skechers plans to unveil a new outlet at Powell and O'Farrell.

- Diamond retailer De Beers opened last month at the corner of Post and Grant, a spot that's been vacant for about a decade.


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