Western Real Estate Business

SEP 2018

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

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M A R K E T H I G H L I G H T: N O R T H E R N C A L I F O R N I A www.REBusinessOnline.com Western Real Estate Business • September 2018 • 47 What happens to the retail land- scape when a national chain bank- ruptcy floats 21 store locations at an average of 40,000 square feet into a regional market? It means that close to 1 million square feet of vacant box space hits the streets at a time when the Internet-dominant, down-rated shopping environment has caused a reduction in the pool of anchor ten- ants. Meanwhile, those remaining are reluctant to expand due to ris- ing rent expectations and fluctuat- ing sales estimates. The Toys"R"Us/ Babies"R"Us implosion is the case study referenced above. It is the larg- est retailer in recent history – in terms of both size of chain and number of units — to cause a significant increase in retail vacancy in the Bay Area and around the country. To further complicate the matter, the rise of the auction format for ten- ant disposition has created new chal- lenges for shopping center owners seeking to control the merchandising mix within their properties. It has also created new avenues for opportunis- tic tenants and patient investors alike. Many of the major department store spaces are either disappearing or be- coming available via right-sizing or the strategic elimination of poor per- formers. This is causing a noticeable uptick in retail vacancy rates. With the challenge defined, what is the solu- tion? Who is leasing these vacant box- es? Depending on the center and the location, developers and mall owners are often taking the dramatic step to convert their traditional department store spaces to non-traditional, alter- native uses. These can include fitness, entertainment (theater and dining options), office, residential, hotel and even medical. National and regional names like 24 Hour Fitness, City|Sports Club, Equinox, LifeTime Fitness, Sports Basement, Decathlon Sports, Bowle- ro, Big Al's, Burlington Coat Factory, Total Wine & More and Ross Dress For Less are among the retail con- tenders, to name a few. In addition, entertainment ("experiential") con- cepts are now more important than ever as a tool to increase footfall to locally and regionally focused proj- ects, especially when targeting the Millennial crowd. There are currently nine new theaters planned for the Bay Area, four of which are already open or under construction. These include screens from upscale brands, such as ShowPlace Icon Theatre in Village at San Antonio, Mountain View and West Field Valley Fair, Cinepolis in Hillsdale Shopping Center, THE LOT in Bishop Ranch City Center and Cin- ema West in Veranda. These operators offer different levels of food and adult beverage services, even concierge- style delivery to your seat, as well as other amenities. With the challenges listed and a so- lution defined, what are the potential roadblocks to success? If a landlord recaptures the vacant space prior to releasing or redeveloping it, they still must abide by the existing exclusives in the center (many of which survive the departure of the prior occupant), CC&Rs and prohibited uses. As a result, brokers and owners are ex- periencing a new barrier to success: securing waivers, which is a time- consuming, yet crucial part of the ne- gotiation process to be encountered en route to re-leasing the space. Our team believes every challenge pres- ents an opportunity for growth and improvement, both in breadth and depth of assortment as well as prop- erty NOI. The ability for the retail real estate industry to adapt on the micro and macro levels to this new reality will ultimately determine the relevan- cy, as well as the returns, of traditional shopping centers in the years to come. The Bay Area has several major retail projects planned or under con- struction. Westfield Valley Fair is adding 650,000 square feet, includ- ing 160 new stores, 10 outdoor res- taurants, a luxury ShowPlace ICON movie theater, outdoor event space and a flagship Bloomingdale's. Hills- dale Mall in San Mateo will complete its expansion of the former Sears store with 280,000 square feet and a planned opening of summer 2019. The lifestyle component will include Cinepolis Cinema, Pinstripes, retail boutique shops and six sit-down res- taurants. City Center Bishop Ranch is a 300,000-square-foot lifestyle center located in San Ramon. It's anchored by THE LOT, a 30,000-square-foot Equinox, Williams Sonoma, Pottery Barn, West Elm and a number of ar- tisan restaurants. Opening is planned for November 2018. Vallco Town Cen- ter in Cupertino is moving forward with a world-class mixed-use devel- opment on 50 acres adjacent to Apple Park. The proposed project will have 400,000 square feet of retail and enter- tainment, more than 2,400 residential units and 1.9 million square feet of of- fice space. TOY'S"R"US/BABIES"R"US CREATE UNIQUE OPPORTUNITY IN THE BAY AREA Jim Randolph Executive Vice President of Retail Services, Newmark Knight Frank Kidder Mathews is proud to be recognized as one of America's fastest-growing private companies by Inc. The secret to our success is simple, we attract the highest caliber of professionals to serve our clients. 877.454.3337 | kiddermathews.com WASHINGTON OREGON CALIFORNIA NEVADA ARIZONA The proof is in the winning... 5 Times FASTEST-GROWING PRIVATE COMPANIES IN AMERICA PSBJ LARGEST COMMERCIAL REAL ESTATE FIRMS 19 Times PSBJ FASTEST GROWING PRIVATE COMPANIES 6 Times SAN FRANCISCO BUSINESS TIMES LARGEST RE FIRMS 13 Times AWARDS FOR BEST PLACES TO WORK IN CA, OR & WA 45 Times ADDITIONAL AWARDS & RECOGNITIONS UPCOMING MARKET HIGHLIGHTS OCTOBER NOVEMBER DECEMBER Portland Orange County Inland Empire Colorado Reno Las Vegas UPCOMING FEATURES Leading Lenders Economic Development Spotlight Property Management Green/Sustainability Trends San Diego Office Trends Technology in Real Estate EDITORIAL OPPORTUNITIES: Nellie Day • nday@francemediainc.com ADVERTISING OPPORTUNITIES: Scott France • scott@francemediainc.com

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