Retail apocalypse spares robust Bay Area property market

The Bay Area’s robust retail property market has been able to
dodge the worst effects of a brutal retail apocalypse that has
jolted merchants around the country, a new real estate report
shows.

Why? A muscular Bay Area economy, pumped up by steady hiring and
rising wages in a red-hot Silicon Valley tech sector, has helped
fortify shops and restaurants against the effects of a downturn
that has battered some brick-and-mortar stores nationwide,
according to a report from Colliers International, a commercial
real estate firm.

Retail rental rates are rising throughout the Bay Area, Colliers
reported. While rents have risen, occupancy levels for stores,
restaurants, and other merchants remain healthy and relatively low,
Colliers reported.

“Tenant mix is still critical to a successful retail
environment but in different categories,” said John Machado,
executive vice president and retail expert with the San Jose office
of Colliers International. “More and more we are seeing
restaurants, dining, beauty, wellness, and entertainment entering
the retail space” in Santa Clara County.

The shift to a fresh crop of retailers is occurring in both the
South Bay and East Bay, and the new merchants have begun to dilute
the long-time dominance of apparel merchants.

“You are seeing more food, more fitness, different kinds of
retail uses emerging in the East Bay,” said Nadine Whisnant, a
senior vice president and retail broker with the Colliers office in
Oakland. “Retailers are getting more creative with getting people
to go to a store.”

Still, not everything is rosy in Bay Area retail, according to
the report, which compiled statistics through the end of September
2019 in areas that included five key markets in the nine-county
region: the South Bay, East Bay, Peninsula, San Francisco, and
North Bay.

The struggles for brick-and-mortar merchants, Colliers reported,
have contributed to a small yet noticeable increase in retail
vacancy rates in three of the five markets. San Francisco, the
South Bay, and the East Bay endured rising vacancy levels, while
the North Bay and Peninsula posted shrinking vacancies.

Yet at the same time, rental rates for retail spaces are rising
in all five Bay Area markets, Colliers reported.

The East Bay was the champ for retail rental rates, as measured
by percent change over a one-year period that ended in September
2019. On an annual basis, retail rents in the East Bay averaged
$33.30 a square foot as of the end of September, up a whopping 52.8
percent from the same month the year before.

South Bay retail rents averaged $33.55 a square foot, up 3.3
percent from the year before, according to Colliers. The South Bay
included the Fremont market.

Peninsula retail rents averaged $43.37 as of the end of
September, an increase of 22.5 percent in a year. San Francisco
rents for retail spaces were at an average of $52.83 a square foot,
up 9.9 percent over the 12-month period. North Bay retail space
rents were $22.31 a square foot, a gain of 7.1 percent, Colliers
reported.

By far the largest single construction project for retail spaces
in the Bay Area was in San Jose, where a massive expansion is in
its closing stages at Valley Fair, a high-end shopping mall, the
Colliers survey determined.

The Valley Fair expansion totals 415,000 square feet and
accounts for the biggest chunk of the 1.1 million square feet of
retail space that’s under construction in the South Bay.

Across the street from Valley Fair, Santana Row has become an
iconic destination in San Jose after principal owner Federal Realty
reimagined the shopping center as a mixed-use village consisting of
stores, restaurants, office buildings, hotel facilities, homes,
fitness centers, and entertainment amenities.

“Brick and mortar stores have expanded the customer experience
by creating highly engaging, people-centric retail environments,”
Machado said. “Santana Row’s offerings are one example of how
work, live and play experiences can co-exist on one
property.”

Among the center’s high-profile tenants: up-and-coming cloud
services and software firm Splunk, which employs hundreds of tech
workers at Santana Row.

Similarly, Broadway Plaza in downtown Walnut Creek and City
Center Bishop Ranch in San Ramon both have emerged as East Bay
destination centers that beckon to the entire Bay Area.

“In Walnut Creek, you have a phenomenal outside mall at
Broadway Plaza, you have a theater, shops, restaurants, a lot of
reasons to go to Walnut Creek,” Whisnant said.

Downtown Oakland, while not a shopping mecca, nevertheless has
become a restaurant, nightclub, and entertainment hub that draws
from a wide area and thrives despite the brick-and-mortar retail
woes.

“Uptown in Oakland has theaters, great bars, excellent
restaurants, places you can listen to music, and it’s a very
vibrant area in the evening,” Whisnant said.

 

Source: FS – All – Real Estate News 1
Retail apocalypse spares robust Bay Area property market