WESTERN SNAPSHOT, MAY 2004

Inland Empire Retail Market

The trail for retail is blazed by the Inland Empire’s substantial residential development. More than 36,000 new homes were sold in the region in 2003, which represents a 41 percent increase for Riverside County and an 18 percent increase for San Bernardino County.

“Given that there is minimal land for development in Orange, Los Angeles and San Diego counties, it is anticipated that this residential development will continue at a similar pace during the next few years,” says Brad Umansky, vice president at Sperry Van Ness’ Ontario, California, office. “As a result, additional retail will continue to be built to support this growing residential base.”

Umansky points to Victoria Gardens, the 1.3 million-square-foot regional mall being developed by Forest City Enterprises and Lewis Retail Centers in Rancho Cucamonga, as the most notable retail development of 2004. “This open-air center will bring a dynamic presence with some upscale retailers to a trade area that has previously been void of such tenants,” he says. Victoria Gardens will be anchored by Macy’s, Robinsons-May and AMC Theaters.

Other major retail projects include Colonies Crossroads in Upland, Riverside Plaza in Riverside and Falcon Ridge in north Fontana. After a long entitlement process, Newport Beach, California-based Pacific Development Group broke ground last spring on the 110-acre, $200 million Colonies Crossroads shopping center. Target, Kohl’s, LA Fitness and The Home Depot will be among the featured retailers at the 1.1 million-square-foot property. Kenney Company is redeveloping Riverside Plaza into 500,000 square feet of restaurants, theaters and retail stores. Lastly, Regency Centers is developing Falcon Ridge Town Center, a 400,000-square-foot project situated near the 15 freeway in north Fontana.

With the March opening of a Wal-Mart Supercenter in La Quinta, Wal-Mart has launched its expansion into the Inland Empire. At least 10 more store openings are scheduled for the region in the next 2 years. Kohl’s has met, if not exceeded, company performance expectations since entering the Inland Empire market last year. Chick-fil-A is entering the fray while Wendy’s and Starbucks Coffee continue to push forward with expansion efforts in the region. Starbucks has gone from zero Inland Empire stores in 1995 to more than 50 today.

Umansky reports that the strongest retail submarkets are Rancho Cucamonga, Fontana, Corona, Temecula, Murrietta and La Quinta. Lewis Retail Partners takes the title of most active retail developer in the Inland Empire with six projects currently under development.

Neighborhood center vacancy rates in the Inland Empire are about 5 percent. Newly constructed, high-profile shop space (e.g., Starbucks Coffee, Panda Express, Quiznos) fetches rents in the $28- to $36-per-square-foot range while in-line store space in grocery-anchored centers yields $21 to $27 per square foot. Lease rates for boxes in excess of 50,000 square feet range from $10 to $12 per square foot. “It is estimated that average lease rates for available space have increased by at least 15 percent during the past 2 years,” says Umansky.

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