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WESTERN SNAPSHOT, MAY 2005
San Diego Retail Market
On paper, San Diego looks like a retail developer’s dream. With rents escalating and retail vacancy hovering around 3 percent, America’s finest city seems like a can’t-miss opportunity for development. The problem is quite simple: finding the land.
Unlike other markets such as Las Vegas or Phoenix, San Diego is faced with three significant natural barriers that greatly restrict development. With Tijuana to the south, Camp Pendleton to the north and the Pacific Ocean to the west, developers must get creative to find opportunities in this very mature part of the country. While there are a few parts of town where ground-up development opportunities still exist, more and more developers are turning toward urban infill redevelopment projects to place their development dollars.
As far as new, ground-up development is concerned, most of the opportunity in recent years has been in Eastlake area (Chula Vista, east of Interstate 805). Most notable are Sudberry Properties’ 380,000-square-foot Eastlake Village Marketplace featuring Target, Lowe’s Home Improvement Warehouse and Office Depot, as well as Gatlin Development’s 405,000-square-foot Eastlake Terraces featuring Wal-Mart and The Home Depot. Kohl’s department store also entered the San Diego market, opening, among others, an approximately 95,000-square-foot store in Gatlin Development’s Eastlake Village Center East.
Among the other developments on the radar screen in the Eastlake area is the 103,000-square-foot The Shops at San Miguel Ranch. A McMillin Commercial development, the grocery-anchored neighborhood center is scheduled to open in 2006.
While Eastlake is clearly leading the way as far as new retail is concerned, some developers are still focusing on other parts of town. Regency Centers will commence construction later this year on the town center, 4S Commons, which will feature retailers such as Ralphs, Sav-On Drugs, Bed Bath & Beyond and Cost Plus World Market. Strategically located in the master-planned, 4,700-home community of 4S Ranch, west of I-15 and the north San Diego County community of Rancho Bernardo, the 250,000-square-foot neighborhood/lifestyle center will be the primary shopping destination for as many as five new communities.
Despite this activity, the fact remains that San Diego is running out of land. Many developers, frustrated with the high cost and scarcity of commercial land, have turned toward urban infill and mixed-use projects, many with extraordinary results. San Diego-based Concordia Homes has teamed with Bitterlin Development on the Spotlight on Broadway project in the Chula Vista Redevelopment Zone. This 2.55-acre site will feature 40 detached homes, 9 two-story luxury lofts and approximately 9,000 square feet of retail featuring First National Bank. The project will open later this year.
Among the many downtown mixed-use projects is Gaslamp City Square by Champion Development. This project, located at 450 J Street, comprises more than 220 condo units and 57,000 square feet of pedestrian-oriented retail. The development has been a trend-setter, attracting such national mall-oriented tenants as Quiksilver and Puma. Another prime example is Allegro Towers on Kettner Street in the Little Italy neighborhood. Allegro Towers LP, a Las Vegas-based developer, has recently finalized a deal with Rite Aid to occupy the ground floor of this 28-story apartment tower.
Despite the high cost and difficulty in finding opportunities in San Diego, retail developers are still finding ways to capitalize on demand. With rents continuing to rise and vacancy near an all-time low, look for developers to continue to think outside the box to uncover retail and mixed-use possibilities in both new and existing communities.
Bryan Cunningham is a sales associate for Flocke & Avoyer Commercial Real Estate in San Diego.
Downtown San Diego Retail Thrives
New Ballpark, Hotels, Residential and Office Development Fuel Growth
The downtown San Diego retail market is hot and getting hotter, with thousands of new residential units and long-awaited new office development fueling a flurry of retail development and tenant activity.
The appeal of downtown San Diego as an exciting 24/7 live, work and play urban environment has created unprecedented demand for retail space — a commodity that, until recently, has been lacking given how fast residential growth has been occurring. Now, with the new and much anticipated Broadway 655 office tower and planned TR Produce and DiamondView office projects at Petco Park, retail can barely keep up to meet demand. The 1 million square feet of new retail space currently underway or planned represents a quarter of the total existing inventory of 4 million square feet. Still, despite the wave of new space, single-digit downtown retail vacancy of 7.1 percent signals healthy supply and demand balance.
What facilitated this extraordinary revitalization? In 1975, then San Diego Mayor Pete Wilson branded San Diego “America’s Finest City.” His vision was to help the under-utilized waterfront downtown district tap its potential to become a vibrant, metropolitan city and gateway to the Pacific. Others shared his vision, and in the early 1980s the opening of Horton Plaza and Seaport Village exceeded all expectations. The convention center followed, and today the 2.5 million-square-foot facility draws more than 1 million conventioneers to downtown every year.
In the late 1990s, attention turned to helping the area evolve into a true urban center, with a variety of retail and entertainment opportunities. Key to this was the creation of Petco Park, a 46,000-seat ballpark that was developed through a public/private partnership with the City of San Diego, the San Diego Padres and JMI Realty. The ballpark’s development was contingent upon a promise from Padres owner John Moores to facilitate 26 blocks of redevelopment around the ballpark. The rest, so to speak, is history.
In the 30 years that have followed Wilson’s proclamation, downtown San Diego has realized more than $5 billion in private and public investment, creating more than 50,000 jobs, 8,000 hotel rooms, 6 million square feet of commercial space and more than 10,000 new condo units. The most active residential developers include Canada-based Bosa Development, Intracorp, SRM and Intergulf. Their pioneering efforts in the late 1990s proved that the area would support mid-rise and high-rise residential development, and retail developers — including OliverMcMillan and D.R. Horton — have been quick to step to the plate.
Tenant demand is soaring, with Starbucks Coffee and 7-Eleven out in the forefront since they are uniquely able to open multiple locations within close proximity to each other. Albertsons will soon join the highly successful Ralphs supermarket downtown with a 42,000-square-foot location in East Village. All supermarket operators believe there is room for one to two more supermarkets and specialty markets in the downtown San Diego marketplace given the growing number of residents. Financial institutions and major drugstore operators are also actively scouting for sites.
More than 62 percent of the new retail space underway or planned is located in the East Village near the Petco Park, the city’s new baseball park that opened to rave reviews just 1 year ago. The ballpark and adjacent Omni, Solamar and Marriott hotels have been tremendous catalysts for growth in this area, and the transition has been nothing short of spectacular. Retailers want to be part of the synergy in the East Village district, knowing that they will not only serve downtown residents and workers, but visitors who come into the area for baseball games, concerts and other sporting and entertainment events. Notable tenants moving into the East Village area include The Palm Restaurant and Design Within Reach and traditional neighborhood retailers such as Marble Slab Creamery, Postal Annex +, Subway and Blimpie.
The historic Gaslamp Quarter is evolving into a major retail destination similar to Third Street Promenade, Old Town Pasadena and State Street in Santa Barbara. A long-time popular night-spot with operators such as Hard Rock Café, TGI Friday’s, Hooters and Sammy’s Woodfire Pizza, the Gaslamp is now seeing an influx of major trend-setting retailers including Quiksilver, Puma, Hilo Hattie and Borders Books & Music, which are joining established operators such as Urban Outfitters, Lucky Jeans and Z Gallerie. Looking ahead, there will be more well-known retailers leaving the malls and opting to become part of the exciting storefront retail along Fifth Avenue.
Bill Shrader and Corinna Gattasso head up Burnham Real Estate’s Urban Retail Group in San Diego. |
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