Expect the Southern California retail landscape to be characterized by continued strong fundamentals and high transaction volumes in 2017. It remains among the most stable markets nationally—attractive to both high-end and affordable retailers thanks to its high median income and population growth.
However, a bit of volatility would be welcomed in the coming year to generate leasing opportunities and enhance rental rate growth.
Significant store closings, including a selection of Walmarts, Macy’s, Staples and Sears, in addition to Sports Authority and Sports Chalet locations, affected many of our regional malls and shopping centers in 2016. As a result, we will continue to see more space absorbed rather than closed or constructed in the coming year.
This type of instability breeds opportunity. From grocers to soft goods to restaurateurs, traditional and non-traditional retailers remain motivated to identify what works best across Southern California.
Retailers who have been working to ‘right-size’ and reconfigure their traditional formats will catch everyone’s attention in 2017. Target recently announced the planned opening of a flex-format concept with plans for a 41,000-square-foot store opening in Orange in the Fall. Burlington Coat Factory has been evaluating a smaller footprint, and Whole Foods 365 will soon open its second Southern California location in Los Alamitos.
Restaurants, which now anchor a many of our shopping and entertainment destinations, remain one of the most viable retail sectors. In 2016, sit-down, quick service and café concepts represented 34-percent of Coreland Companies’ total deal volume, a number that has steadily increased over the last five years.
Despite the strength of the food sector, expect to see natural turnover among restaurant concepts. Food trends will shift and poor operators will be replaced with new and better uses. While 2016 was the year for Poké, 2017 will likely see the expansion of quick-service Mediterranean concepts, like Chicken Maison, fresh juice concepts like Juice Pressery, or bowl concepts such as Bowlology.
Although there remains a finite list of typical soft goods and service to back-fill space, such as cell phone stores or salons, medical uses are continually expanding and taking sizable square footage. Examples are prevalent along any retail corridor. In Santa Fe Springs, a long-time 12,000-square-foot vacancy was recently leased to an East Coast Medical Group; and a neighborhood Tustin shopping center, which had traditionally consisted of a mix of struggling retail and service, is now 100% leased―more than half are health & fitness tenants.
Among the property types, grocery remains the best attraction. A well-located center within the Los Angeles or Orange County market is hard to beat, as long as ownership groups, managers, brokers and tenants work together to maintain the ‘experience’. Whether it’s a high street shopping destination or a community retail center, presenting a compelling customer experience will remain top priority in 2017.