West Side Story

Similiar to the rest of the country, the West Coast is a two-sided coin when it comes to its retail climate. In Oakland, Calif., for example, job losses and rising cost of living have resulted in reduced spending, which in turn has led to retail closures and slowed expansion. Yet, low vacancy rates will entice tenants to re-sign leases to retain premium space—this according to Marcus & Millichap’s second-quarter 2008 outlook..

The Riverside/San Bernardino region of California has its own share of woes. By yearend, local employers are forecast to shed 13,000 jobs, according to Marcus & Millichap, and vacancy rates are rising. On the other hand, the 380,000-sq.-ft. High Desert Gateway power-center project will open in Hesperia—the city’s first bigbox development in nearly 20 years.

San Francisco vacancy rates are also on the rise, but street-level retail space continues to attract high-end national retailers, reported Marcus & Millichap.

Seattle paints a brighter picture. Construction on large shopping centers continues and, in the West Seattle/Tukwila market, nearly 1.1 million sq. ft. of regional shopping space is under way, in a market that has been underserved by retail.The region’s vibrant aerospace and information industries bolster employment, and the local housing market hasn’t experienced big declines in home values. Retail sales, at 5.3%, are among the highest rates in the nation.

To get a closer look at what is happening on the West Coast,Chain Store Age talked with Dave Mossman, executive VP of development and acquisitions for Costa Mesa, Calif.-based Donahue Schriber, an active developer in the region for nearly 40 years.

The bad news—and the good: “Everything has slowed down from a leasing standpoint for us,” said Mossman. “We’re seeing sales across the board down anywhere from 5% to 20% in the sales that we track.” But, he added, grocery stores are experiencing the same increases on the West Coast that they’re enjoying elsewhere in the country.

“Grocery stores here have made a lot of changes that have allowed them to better weather the tough times,” said Moss-man. “Grocers are reworking their stores, creating atmospheres that are more inviting for the customers, and beefing up their prepared-foodofferings.

“It’s been interesting to watch the decreases in quick-service, fast-casual dining and the corresponding increases in the percentage of sales in the grocery stores,” he said.

The greatest retail pain? “No question it’s the fashion sector,” said Mossman, “as well as the fast-casual sit-down dining.”

Recession resilience: Contraction is everywhere. “Projects aren’t nearly as big, and are being built in phases,” said Mossman. “Those of us who are being smart about it are no longer building spec space. If I have a building and it’s not 50% leased, I’m not building it.”

One format that isn’t being built is the lifestyle center. “Obviously, with fashion not doing well right now, those projects have either been scrapped, tabled or delayed,” said Moss-man. On the other hand, the neighborhood center is holding its own.

The “bread and butter” and “meat and potatoes” of Donahue Schriber, the daily-use, grocery-anchored neighborhood center is what the company calls its “recession resilient” format. “Even in tougher times, people have to do their grocery shopping; therefore the neighborhood centers that have the strong volumes and the strong grocers are weathering the storm right now,” Mossman said.

Countryside Marketplace: Located in Menifee, Calif., Countryside Marketplace is a Donahue Schriber power-center project that “goes right back to the fundamentals of real estate,” said Mossman, “location, location, location.” On a freeway interchange along the Interstate 215 corridor in the Temecula-Menifee area of California, Countryside Marketplace has managed to pull the top-tier major tenants. Kohl’s opens this month, Target is opening in October and Lowe’s will open in the fourth quarter as well. “This has been very encouraging to us in this market,” said Mossman, “because you don’t see a lot of new power centers going up.”

Countryside Marketplace features roughly 730,000 sq. ft. of GLA, is about 91% leased and will be fully open by year-end 2009 or early 2010.

Smoke Tree Commons: Donahue Schriber’s 170,000-sq.-ft. community center in Palm Springs, Calif., Smoke Tree Commons, is tenanted by a local grocer Jensen’s, as well as Walgreens, Petco, Michaels and Cost Plus. The 20-acre project, which is 93% leased, is projected to be fully open by summer or fall of 2009.

“This center has the daily-needs pull of the grocer and the drug store,” said Mossman. “But it also has the weekly or biweekly or monthly pull of Petco, Michaels and Cost Plus. These tenants looked for a location in this area for some time, and we were able to get control of the site and get it entitled.”

Although Countryside Marketplace and Smoke Tree Commons are two major projects in the works for Donahue Schriber, the company still has a $500 million development pipeline of projects that will open by the end of this year and into 2009, 2010 and 2011, said Mossman.