Inland Empire’s Retail Vacancy Rate Drops as Economy Spurs Investment
First quarter looks solid for retail real estate market
Reports of the retail sector’s demise might be premature, at least in the Inland Empire.
A report on first-quarter activity in the sector, released earlier this week by brokerage firm CBRE, found that the vacancy rate in the two-county area declined to 8.2%, down from 8.3% in the fourth quarter of 2018. New players are leasing spaces that were once occupied by iconic retailers.
The CBRE study focused on shopping centers that have at least 50,000 square feet.
In Riverside, Northgate Gonzalez Market is preparing to move into a site formerly occupied by a Toys R Us. Furniture retailer Floor & Decor, which recently leased a 138,406-square-foot site at the Centre in La Quinta, is the largest new arrival in the quarter.
Vacancy rate declines as more property is leased
The decline in vacancy was noted despite adding more than 81,000 square feet to the mix when Elsinore Central Market was completed. The new neighborhood center is anchored by a Marshalls and includes a Sketchers Outlet and Five Below.
Also, work on the 178,268-square-foot Goodman Commerce Center in Eastvale — the only center under construction at the end of the quarter — is expected to be completed by the end of 2019. Costco opened at the complex last June.
Goodman Commerce Center was developed to take advantage of the traffic generated by the Amazon fulfillment complex located across the street, CBRE researchers said.
An industry in transition
Sandy Sigal, chairman, president and CEO of NewMark Merrill, a Woodland Hills-based developer that owns and operates some 80 retail centers, including Riverside’s University Village, agrees that the retail world is physically being altered.
“Retail is obviously in transition but it’s not dying,” Sigal said. “Maybe it’s sort of like a mid-life crisis.”
NewMark Merrill has repurposed and leased several former Kmart sites, including two in Southern California, and he said large stores can be easily divided into five smaller ones that can run from specialty clothing to restaurants, gyms and urgent care clinics.
Sigal said foot traffic has been “super good” at his properties.
“At University Village, you might think that university students are so savvy they won’t go to a shopping center, but we have a combination of everything at the site that is in demand,” Sigal said.
Low unemployment, more jobs
The CBRE study cited the Inland Empire’s 4.3% unemployment in February and the addition of an estimated 18,000 jobs in the previous 12 months. It also cites new and better-paying jobs in health care, professional services, education and government in the first three months of 2019.
A recent report from economists at UC Riverside found that wages in the area increased by 2.8% in the fourth quarter of 2018. These factors are encouraging retailers to invest in the region.
That is also reflected by the cost of doing business. Lease rates climbed to $2.10 per square foot, surpassing the all-time high of $2.06 reached 10 years ago. The highest rates were in southern Riverside County, which also has the lowest vacancy rate, at 6.1%.