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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50 • September 2018 • Western Real Estate Business www.REBusinessOnline.com FOR CALIFORNIA RETAIL, SMALLER IS BIGGER A downshifting in space and activity doesn't necessarily spell doom and gloom for the state's shopping centers. Instead, investors are choosing to do more with less. By Nellie Day B y all accounts, California is known for being big. It is the most populous state in the na- tion, with $2.7 trillion in GDP, accord- ing to recently published federal data. This makes California the world's fifth largest economy — ahead of the United Kingdom. As expected, the re- tail market has followed suit. "California offers world-class shop- ping, entertainment and tourist desti- nations, which translates to having the highest number of retail stores with more than 420,000 establishments, nearly 30 percent more than the next highest state, Texas," says Jeff Lefko, vice president of Hanley Investment Group in Corona del Mar, California. "More than 4.7 million people are employed in retail-related jobs across the state, which accounts for almost one-fifth of California's total employ- ment." It may seem that the Golden State is living large, but savvy investors are preparing for change. While we may not be in a retail apocalypse, survival is on the minds of many in this indus- try. "Shopping centers will need to con- sider what it is they initially set out to be — community gath- ering places — and reimagine what that means in relation to shifting consumer preferences and the current landscape," says Carol Sitzen- statter, senior leasing professional at Phillips Edison in Sacramento. "Cali- fornia is a very lifestyle-oriented state, and customers are coming to our cen- ters not only to shop but to get their daily workouts, visit dentists and doc- tors, and enjoy a night out with fam- ily and friends. Overall, retailers are reducing their real estate footprints to maintain profitability." Reduction seems to be a theme throughout the state's shopping cen- ters as owners look to increase ROI, combat rising costs, diversify their of- ferings, and make excesses like shop space, power usage and parking more efficient. Think Small High construction and land costs — not to mention a lack of available land — has caused many shopping center owners to favor reinvestment in their current properties. This has led to an increase in public and social spaces and, in many cases, a reduction in storefronts. "Renovations are the big thing right now," says Simon Perkowitz, prin- cipal in KTGY Architecture + Plan- ning's Irvine office. "This includes deconstructing big-box stores into smaller retailers, restaurants, office space or residential. We are also up- dating older centers. Preferences for traditional styling have given way to a preference for modern, clean lines, wood or composite tiling, extensive glazing, patterned hardscapes and lushly landscaped pathways and nodes." In today's new era of retail, Perkow- itz believes landlords have to put the customer first and the dollar second (or third) if they want to remain vi- able. "The focus is on creating a sense of place and achieving a place where synergies create a strong social realm and one that resonates emotion- ally with the community," he contin- ues. "Filling in an empty space with whomever is willing to take it is no longer the primary goal. Finding the right tenant who can really benefit from the new environment that the developer is trying to craft is a more sustainable approach." He points to Heritage Square, a proposed retail and residential proj- ect on the site of a former Fresh & Easy building in Signal Hill, as a prime example. The mixed-use de- velopment headed up by Signal Hill Petroleum (SHP) and Vestar calls for 42,800 square feet of retail, 199 apart- ments, four single-family residences, a parking structure, a "Main Street," an outdoor plaza and community gathering spaces for events like farm- er 's markets or movies in the park. KTGY is designing the seven-acre site, which sits adjacent to the Signal Hill historic district, as a new city center and downtown — something Perkowitz and his team feel is lack- ing in the area. Heritage Square isn't the only project to move away from big box and toward multi-function. Der- rick Moore, senior vice president of CBRE in Downtown Los Angeles, has witnessed this trend throughout the state. "Those leaving vacancies will likely continue to be big-box retailers that failed to cre- ate meaningful experiences and con- nections with consumers," he says. "Convenience is more important than ever, given many people's busy lives. That's where the live-work-play con- cept has become more relevant, driv- ing demand for mixed-use develop- ments where residential, retail and office converge." Co-working spaces have gained particular favor with California land- lords as they look to replace certain soft goods that are now commonly purchased online with necessary ser- vices and unique experiences. Designed by KTGY Architecture + Planning, Heritage Square is a seven-acre site adjacent to the Signal Hill historic district. The mixed-use development calls for 42,800 square feet of retail, 199 apartment units, an outdoor plaza and community gathering areas. Sitzenstatter Moore Phillips Edison's Rocky Ridge Town Center in Sacramento is a good example that less is more. The 93,337-square-foot anchored center is anchored by Sprouts Farmers Markret, and also contains Starbucks, Pieology, AT&T, Wells Fargo and Sport Clips, among other tenants.

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