California’s Retail Wave


In 1961, northern California wasn’t nearly what it is today.

Though my retail vantage point was from the seat of a double stroller, familial oral history tells me that during the three years my military family was stationed in the San Francisco Bay Area, Alameda and Marin Counties presented fairly meager shopping opportunities compared to today.

My mother favored department store shopping back then, loading my twin sister and me into the stroller—with our older sister Karen walking alongside—and browsing through the mostly pricey merchandise offerings in San Rafael and San Francisco, while my father was away at sea commanding a U.S. Coast Guard ship in the Pacific.

In 2007, Coast Guard families have far more shopping venues to keep them occupied while their loved ones patrol the West Coast. In fact, California as a whole has drawn the full attention of a retail nation as tenants line up to open doors from north of Sacramento down to San Diego.

According to the latest real estate research from Marcus & Millichap, five of the top 10 markets in the 2007 National Retail Index (NRI) are in California: Oakland (No. 4); San Diego (No. 6); Orange County (No. 7); San Francisco (No. 8); and San Jose (No. 10). (The NRI measures the forecast level and degree of change for a series of variables, including vacancy rates and overall economic health, indicators of a market’s retail strength.)

Although four of the top 10-ranked California markets slipped slightly from their 2006 positions on the index, San Jose leaped forward seven places this year, credited to a stable local economy and increased tenant demand for retail properties. Like the rest of the nation, San Jose is seeing a real trend toward mixed-use development, as some of the metro’s vacant or planned office space is being integrated into retail projects.

Oakland dropped a spot to No. 4 overall; however, it remains a steady market with elevated tenant demand and projected increased development activity. But Oakland, like other areas of the state, has seen an overall slowdown in residential building.

The slowdown in new-home permits has taken its toll not just on California, but on the nation as a whole. Yet, developers active on the West Coast continue to wax optimistic about the future of commercial development in the state (see Chain Store Age’s “California Market Profile,” beginning on page 107). Dave Mossman, executive VP of development and acquisitions for Costa Mesa, Calif.-based Donahue Schriber, told me, “The growth here in California, as well as in Arizona and Nevada, is what is most attractive to us as a company. When you have the growth, you have new opportunities.” The biggest retail opportunists today are the major big-box players, picking up where the grocery store segment left off and showing no signs of slowing down their march across California.

Which city occupies the top slot on Marcus & Millichap’s national retail index? New York City, which leapfrogged from No. 4 in 2006 to its No. 1 position in 2007. We’ll tell you more about the Big Apple and its northeastern market counterparts in the December issue, when Chain Store Age presents its annual “Northeast Market Profile.”

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