CBM’s Retail Shopping Center Management & Leasing Blog

Retail Real Estate News & Trends in Southern California

321 Willow Street, Long Beach, CA

Centers Business Management (CBM) property manager, Roselene White, recently completed a lease transaction representing the landlord and tenant, Flame Broiler, on a 1,716 SQFT retail space. The property is just off the intersection of Willow Street and Long Beach Boulevard in prime Long Beach. Boasting a bevy of A+ co-tenants, the property hosts Metro PCS (cell phones), Subway, and H&R Block. Additionally, a drive-thru Burger King is situated on property’s hard corner, with Rite Aid, McDonalds, Carl’s Jr on the three adjacent corners.

5 Trends in Retail Reinvigoration

By Globe St | May 30, 2018

The face of retail has changed over the past decade with the introduction of e-commerce and changing consumer spending habits. Though it may appear this is having a negative effect on the retail real estate world, it’s become an age of reinvigoration for these properties.

With Partner touching around 10% of CRE transactions in the US (during due diligence or development), we asked our staff from across the country “What are you seeing? What are some of the interesting retail transformations happening?” In this informal poll, these 5 trends stood out:

1. Big Box Getting New Purpose in Life

Many of the big box and anchor mall stores are being left vacant due to poor performance, bankruptcy of retail chains, or in favor of a smaller space for those still operating. While these spaces are generally considered a difficult property to reuse due primarily to the sheer size, a new type of consumer is creating different needs and therefore bringing new life through re-purposing.

We’re seeing the repurposing of ‘big box’ retail stores into self-storage facilities, especially those with highway visibility and those that can be fitted for the often requested climate controlled storage fact, we are seeing self-storage not just transforming big-box stores but also underused urban mid-rise buildings with the suburban to urban shift. For example, we helped Hickory Capital with the adaptive reuse of a 75-year old downtown Cincinnati building into high-density storage.

We are also seeing examples of grocery stores conversions to medical office or assisted living. These projects are unique from an engineering perspective with the need to re-work the mechanical, electric and plumbing (MEP) system demands that are required in order to support medical needs, such as specialized ventilation/heating/cooling systems, electrical system support for emergency generators or medical equipment, and plumbing systems that can accommodate the new use.

Another trend we’re seeing is conversions to trampoline parks, a reflection of consumer desire for “experiential” visits and a more family-friendly destination. We see this particularly in the Midwest region via former grocery stores. Some lenders hesitate to finance such a creative reuse, but others including 44 Business Capital (a division of Berkshire Bank) are willing with the right safeguards in place. In one instance, we provided construction risk management support for the conversion of a former HHGregg into the Altitude Trampoline Park in Sanford, FL.

2. From “Busted Mall” to “Experiential Destination”

Consumers are driving retail to move from the traditional, now-struggling suburban malls to lifestyle centers where retail is a part of an overall experience. Consumers are looking for an experience – whether it be going to a restaurant, catching a movie, or just enjoying outdoor recreation. By creating a mixed-use campus, retail shopping can be more of a leisure activity and not a chore. A notable example is Orlando’s former Festival Bay Mall / Artegon Marketplace. We contributed pre-development due diligence here for luxury developer Dezer Development in turning this struggling mall in a prime location into an entertainment complex and event center. The redevelopment includes an automotive museum featuring Mr. Michael Dezer’s private collection of James Bond movie vehicles. A movie theater and non-traditional anchor tenant, along with the large parking lot presenting hospitality opportunities will ultimately bolter the property’s value and overall experience. In another creative example, we performed environmental due diligence at a Prescott, AZ retail property being transformed into an activity center featuring rock climbing, yoga studio and a café.

3. Industrial to E-commerce Warehouse

With the inventory of space sitting vacant in prime locations, some investors and lenders are looking for ways to make these facilities useful again and the e-commerce trend is helping. The need for warehouse and distribution facilities in metro areas are at an all-time high and with little to no green lots, these large, open, unoccupied buildings can be an answer. In the time of Prime’s 2-day or same day delivery model, inventory must be easily accessible to not only to urban and metro areas, but to surrounding suburbs and even more rural areas. With these projects, we help clients to take a close look at whether the structure and configuration are appropriate for distribution purposes. We answer questions such as: is there enough turning radius in the dock area? Is the clear height sufficient in all or certain areas? Is the concrete pad suitably flat for lift truck traffic, and strong enough for heavy racking systems?

4. Retail to Residential

A multi-building/strip mall style retail may initially seem difficult to re-purpose, but thinking outside the big box is key to creating attractive possibilities. We’ve been involved in multiple projects where retail strip malls centers or and multiple stand-alone retail buildings are turned into multifamily or student housing when in the higher education setting. We’ve also seen a larger stand-alone retail building be converted into multiple housing residential spaces. In an urban example, we were involved in the conversion to luxury apartments of an historic downtown Detroit building with a long-time vacant big box store.

5. Digital Brands Expanding into Brick and Mortar

The convenience and easy accessibility of online shopping has become a daily habit for most consumers but there are still some who like to see and feel the actual product before making a purchase. Some exclusively online retailers, like Modcloth, Glossier, and Boll & Branch have begun opening small ‘showroom’ type stores with a variety of online inventory displayed, customer service representatives that are knowledge about the product available to answer questions, and in store ordering systems that will still give you the convenience of delivery to your door.

More than others, retail is an evolving market in terms of commercial real estate, and we are fortunate to have the hands-on experience of the changes that are occurring today. Distinct trends have emerged and it’s clear that thinking outside the big or small box is worth the risk and investment.

6403 Van Nuys Boulevard, Van Nuys, CA

Centers Business Management (CBM) leasing agent, David Guardado, recently completed a lease transaction representing the landlord and tenant, a legal aid provider, on a 2,200 SQFT street retail space. The unit is one door down from the intersection of Van Nuys Boulevard and Victory Boulevard. An ideal location for a legal aid business, the site is close to the nearby Van Nuys Courthouse and Los Angeles Registrar-Recorder/County Clerk’s office.

2944 Cark Drive, Long Beach, CA

Centers Business Management (CBM) leasing agents, Geoff Grossman and Aaron Guido, recently completed a lease transaction representing the landlord and tenant, a local coffee shop + cafe, on a 1,080 SQFT retail space. The unit is in a mid-block strip center situated on busy Clark Avenue, just east of Spring Street, across from a massive office park that stretches several blocks along Clark Avenue.

22990 Ventura Boulevard, Woodland Hills, CA

Centers Business Management (CBM) leasing agent, David Levcovitch, recently completed a lease transaction representing the landlord and tenant, a local beauty supply store, on a 1,200 SQFT retail space. The unit is in a midblock strip center on heavily trafficked Ventura Boulevard, two blocks west of Fallbrook, just east of the Woodlake Avenue exit off the 101 freeway. An attractive, well-maintained property, the center includes a diverse mix of restaurant and service-oriented businesses.

2424 E. Katella Avenue, Anaheim, CA

Centers Business Management (CBM) leasing agent, Jason Ross, recently completed a lease transaction representing the tenant, Papos Cuban Restaurant, on a 1,299 SQFT retail space. The unit is situated in the Starmont Shops at Stadium Towers, a newer retail development at the foot of the Stadium Towers office park, on busy Katella Avenue right at the entrance to the 57 freeway in prime Anaheim. Boasting exceptional curb appeal, the modern-styled center’s A+ co-tenants include Comerica Bank, Rudio’s Fresh Mexican Grill, Calvino wine bar, Subway, Hooters, and Wholesale Nutrition Center.

1630 ½ Anaheim Street, Long Beach, CA

Centers Business Management (CBM) leasing agent, Matt Saker, recently completed a lease transaction representing the landlord, in a deal with a boxing gym, on 7,500 SQFT street retail space. The storefront unit is on busy Anaheim Street, just east of Walnut Avenue in Long Beach. The site is adjacent to a Metro PCS location and across the street from a large, well-patronized Dollar City discount store.

1246 W. Foothill Boulevard, Upland, CA

Centers Business Management (CBM) Valley Division Director, Dave O’Connell, and leasing agent, Zac Ryburn, recently completed a lease transaction representing the landlord and tenant, Planet Fitness, on a 4,000 SQFT retail space. The unit is in a large community shopping center at the intersection of Foothill and Mountain in prime Upland. In addition to the Stater Bros, the center’s notable co-tenants include Big Lots and busy Chevon Gas station on pad space situated on the center’s hard corner.

Taken a gander at the news lately?

Seemingly every second headline touts the closure of yet another retailer. Either they’re “downsizing” (or “rightsizing” in the politically correct vernacular) and shuttering locations. Or they’re closing up shop altogether.

Here are some of the more notable retailers currently “rightsizing” their operations or on their way out for good…

  • Toys R Us – 735 locations
  • Abercrombie & Fitch – 60 locations
  • Foot Locker – 110 locations
  • Best Buy Cellular Stores – 250 locations
  • JC Penney – 8 locations
  • Sam’s Club – 63 locations
  • Macy’s – 11 locations
  • Michael Kors – 100 locations
  • Sears & K Mart – 103 locations
  • J Crew – 50 locations
  • Gap & Banana Republic – 200 locations
  • Teavana – 379 locations
  • Ann Taylor, The Loft, Dress Barn and Lane Bryant – 268 locations
  • Nine West – 70 locations

Obviously, this is bad news for a large segment retail real estate. But notice something all of these businesses have in common?

None would occupy a typical strip center. Malls, for sure. Power and lifestyle centers, too. And probably large-scale regional strips as well.

But you wouldn’t find any of these businesses in your everyday urban shopping center.

And this shift, believe it or not, is GREAT news for shopping center landlords like you!

Why, you might be asking?

Well, a number of economic, societal, and business development factors are at play, which is not only enhancing the value of strip center real estate but ensuring the stability of this asset for years to come.

Specifically, here are five key elements that make this the best time in history to invest in strip center real estate…

1. Demand for Services

Much of “traditional retail,” which has depended largely on selling physical products, is disappearing.

But guess what’s not diminishing? The public’s demand for services, a demand that’s ramped up like never before.

Nail salons, massage, tax prep, insurance, tutoring, child care + early child education, pet grooming + kennel services, veterinary clinics, urgent care, dental clinics, optometry, martial arts studios, fitness and personal training, restaurants, cafes, bakeries, and the list goes on and on.

And where do the vast majority of these businesses locate?

Your good ole traditional urban strip center!

And speaking of restaurants…

2. Eating Out is Outpacing Grocery Store Sales

In 2016, for the first time in history, gross restaurant sales exceeded grocery store sales.

In other words, the nightly “menu plan” for many American families has become picking from a deck of quick-serve takeout menus.

And once again, where do most quick-serve and fast casual restaurants locate?

You guessed it, retail strip centers!

3. Strip Centers Have Already “Rightsized”

Once upon a time, urban strip centers hosted their share of tenants selling physical products.

But as department stores, and large-scale discount stores, like Walmart, Target, TJ Maxx, Marshalls, Ross and others crept into the retail landscape in the ‘80s + ‘90s, small format retail stores selling physical products were steadily edged out.

And with the rise of internet sales beginning in the early aughts, by the end of the first decade of the new millennium, product sales based retail was in the serious death spiral.

Thus, strip centers have already weathered this contraction and reinvention storm currently facing shopping malls and other large format shopping centers. And strip centers have not only weathered the storm but righted the ship and become more profitable than ever!

4. Smaller Spaces + Reasonable Rents = Lower Attrition

Looking at the list of failing retails above again, what’s another common thread among these businesses?

All either occupy physically large sites or are positioned in high-profile locations. Two factors that demand high rents.

So, of course, when sales fall off, it’s impossible to meet those significant financial obligations. And business either downsize or fold up their tents for good

Strip centers units, on the other hand, are far smaller and typically situated in urban locations that don’t command the same “prestige” as shopping malls. Also, on average, strip center rents are far less expensive.

So, while sales may ebb-and-flow, a bad month, or even a bad couple of months, isn’t likely to sink a tenant’s entire operation.

5. Reasonable Rents = Easier to Lease

When JC Penny’s vacates a mall, abandoning 50,000 SQFT, what’s a landlord to do? The odds they’re going to find a replacement tenant willing to take even a fraction of that space or pay anywhere near the same rent are slim to none.

So, not only has the landlord lost that income, a huge hit to their bottom line, but those dollars may never be replaced.

Meanwhile, when a cellphone tenant paying $2.50 per foot vacates a 1,200 SQFT space in corner strip center? It will probably only take a matter of months to replace that tenant. And in all likelihood, the new rent will be higher.

The Bottom Line? Strip Centers Are a Secure Investment…

The headlines are genuine. There is real carnage in the retail real estate industry at the moment. And there’s likely to be some serious pain for many involved.

But strip center real estate has already weathered this storm. Retail strip centers have adapted to the “service economy.” Locations were “rightsized” years ago. And most strip center landlords aren’t facing financial ruin if a tenant goes out, because the economic hit is minimal, and the income imminently replaceable.

The Key to Maximizing Your Strip Center Investment?

Effective leasing and property management.

Quickly filling vacancies with qualified tenants that synergize with existing operators is key to maintaining your income stream.

While ensuring your property remains in good condition and fostering positive tenant relations is critical to keeping tenants in place.

Need Leasing + Property Management Support?

CBM can help! Visit our Services page to find out more about our retail leasing + property management services.

622 Mission Street, South Pasadena, CA

Centers Business Management (CBM) leasing agent, Barry Bussiere, recently completed a lease transaction representing the landlord and tenant, a local nail salon, on a 928 SQFT retail space. The property is at the intersection of Mission and Grand in prime South Pasadena. The site is directly across the street from a well-patronized Trader Joe’s grocery store.