WESTERN SNAPSHOT, SEPTEMBER 2006

East San Francisco Bay Retail Market

There continues to be a strong pipeline of new ground-up retail development, redevelopment and urban infill projects in the East San Francisco Bay area. New retail development remains strong in eastern Contra Costa County and along the Interstate 580 corridor between Dublin and Livermore, where still-available land is attracting new housing communities. Redevelopment activity is occurring along the Interstate 880 corridor and within existing neighborhood centers, as land is too costly to build new centers.

Vacancy rates remain around 3 percent. However, this will change slightly as almost 400,000 square feet of space will become available with the closure of 11 Albertsons stores in Contra Costa and Alameda counties. This will change the landscape of many neighborhood centers and create the opportunity for national, regional and local tenants to get into these challenging markets.

Small shop space is tough to come by, and the market is experiencing a rise in rental rates. In new retail developments in the East Bay, rental rates for shop space are reaching $42 to $48 NNN. Big box rents are reaching into the $25 to $35 range as construction and land costs continue to rise.

Brentwood is a very active market with the proposed lifestyle center located at Highway 4 and Sand Creek as well as the continued development along Lonetree. Continental Development will develop a 515,000-square-foot, theater-anchored lifestyle center and hopes to attract similar tenants to those located in Broadway Plaza in Walnut Creek. Sansome Pacific has started construction on its 90,000-square-foot retail center at Empire and Lonetree. This project will be anchored by a 60,000-square-foot Best Buy.

Dublin has become a very attractive market for developers with housing growth fueling the need for additional retail space. Regency Centers is planning a 400,000-square-foot project at the intersection of Dublin Blvd. and Tassajara. Also, the 250,000-square-foot Grafton Station, which will be anchored by Lowe’s Home Improvement Warehouse, is planned at Interstate 580 and Tassajara. Blake Hunt is moving forward with its 137,000-square-foot lifestyle center next to the proposed 300,000-square-foot IKEA at Hacienda and I-580.

Fremont continues to be on the radar for both retailers and developers. Sandhill Properties is in the process of redeveloping the shopping center at Mowry and I-880. This project will consist of 200,000 square feet of retail space. Phase 4 of Pacific Commons is nearing completion and will be anchored by a 35,000-square-foot Jo-Ann Fabrics & Crafts.

The landscape of downtown Walnut Creek will change with the 40,000-square-foot Andronico’s space at the corner of California and Olympic. The downtown location at Locust and Diablo (formerly Mark Morris Tires) is just entering the redevelopment process. Also, Urban Outfitters has signed a lease to take 15,330 square feet of the former Tradition’s building on Olympic, and the former Albertsons will soon be home to Trader Joe’s and Elephant Pharmacy.

Trader Joe’s will be opening a new store in downtown Walnut Creek this fall as well as one in Brentwood in the Lone Tree Plaza. Best Buys will be opening a new store in the city of Brentwood. In Fremont, Wal-Mart will be opening its second store, to be located in the old Costco location at I-880 & Stevenson.

It remains to be seen whether the rental rates will continue to climb or level off as 2007 approaches. The challenge for the East Bay, not unlike the rest of the greater Bay Area, is that land and construction costs continue to soar while available land becomes harder to find.

Scott Turner is an associate at San Francisco-based Retail West Inc.

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