Tri-Valley Retail Report: 2012 Review

“2012 was reminiscent of a middle school dance; patches of activity mingled with awkward progression.”

All joking aside, 2012 was an interesting time for retail commercial real estate in the Tri-Valley. Each City remained on trend with the previous year. Danville saw the largest decrease in vacancy due in part to the backfill of the former Blockbuster space and a couple other larger vacancies. Livermore saw the largest increase in vacancy rates which can be attributed the exit of Chevy’s FreshMex, Blockbuster Video, and a few other mid-size tenants. Pleasanton did well despite the deceiving numbers. Pleasanton Gateway saw 115,000 square feet of positive absorption alone but the increase in total inventory skewed the numbers which reflects slightly increased vacancy rate. Both Dublin and San Ramon had slight improvements in the way of vacancy rates. The market as a whole had very mixed results, intense leasing in one sector and a stalled activity in another. The best way to summarize the market is segmented with three main categories: new, good, and subpar.

New is categorized as all ground-up development including Fallon Gateway in Dublin, Paragon Outlets in Livermore, and Pleasanton Gateway in Pleasanton. Unlike most of the country, our retail vacancy rates have been relatively low and showing recovery over the past two years, this drove the demand for new construction. Pleasanton Gateway became a food focused center attracting the likes of Corner Bakery, Baja Fresh, Bagel Street Café, Ascona Pizza, Panda Express, and The Habit Burger Grill. The swift leasing created such high demand for space, the rents received eclipsed any previous apex in the Tri-Valley.
Paragon Outlets also had a great success story. Despite being a different product in general, the premium discount mall was able to deliver the project 95% leased. I would like to note, we do not include Paragon Outlets in our inventory because the sheer size and specific type of center would skew the numbers and not accurately depict the overall leasing activity; we also do not include Stoneridge Mall for the same reason. Fallon Gateway had success after the opening of Target, including BJ’s Brewhouse and Dick’s Sporting Goods (under construction). I would expect the demand for shop space and restaurants within Fallon Gateway to increase in the upcoming months. Both Pleasanton Gateway and Paragon Outlets were sold prior to year-end.

Good product can be categorized by being newer construction and with few exceptions, grocery store or big box anchored; I would also lump downtown storefronts into this section of the market. This category saw a slight improvement in rents and steady leasing and sales activity. The bulk of leasing activity was the offshoot of “new” product, mostly seen in the form of emerging tenants either being priced-out or not fitting the tenant mix of centers such as Fallon Gateway or Pleasanton Gateway.

Subpar can be described as everything that is not “new” or “good”. Unfortunately, this category is 60% of the market. This segment suffered from a lack in activity and continued to crawl with very little interest from new or growing tenants. The stagnant rents and lack of activity is contrary to the positive activity seen at the new product level.

Where does this leave us in 2013? Indicators point to continued new development and redevelopment. Investment retail building sales will continue to increase but the lack of “good” inventory is now hampering buying power and driving up prices across the board. A discrepancy in pricing will continue, as new construction comes to market there will be a flight to quality, leaving vacancies in older centers that will be difficult to lease. In the presence of ground-up construction, the rest of the market will continue to grow at a snail’s pace without a flood of growing and emerging businesses.

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