Retail properties generate very little interest

June 23, 2011, 10:17 am

Employers are not adding many jobs in Inland Southern California, and developers are in no hurry to build new homes. Until those things happen, there won’t be a surge in new retail development, a real estate market report found.

The vacancy rate for retail establishments in Riverside and San Bernardino counties is expected to increase slightly this year, to 11.7 percent from about 11.5 percent a year ago, according to research from commercial real estate firm Marcus & Millichap. Rents are expected to continue to decline because prospective tenants see the area as a renters’ market.

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If there’s an exception, it could be at some of the locations near commuter routes leading to Los Angeles and Orange counties. There has been interest, and some signed leases, in Rancho Cucamonga, Chino and the Highway 91 corridor in Riverside and Corona.

All of these locations are near freeways leading to the coastal counties, which have seen a little more job growth in the last three months than the Inland counties. A commuter artery usually leads to drop-in, rush-hour traffic from shoppers.

“I think there’s been a little interest from mom-and-pop type tenants, and some from national chains,” said Skip Crane, senior vice president with Grubb & Ellis. “But the brokers who are contacting me are interested in Orange County or LA County, or at least they’re interested in places that are closer.”

What brokers say they’re not seeing is interest in retail space located in Inland bedroom communities, mostly because few developers are adding bedrooms in the area these days. Few plans for new housing have been announced, and it could take a long time for the growth seen in the first part of the last decade to resume.

That means the shopping center vacancy rate is likely to be higher in places such as Perris, Banning or Yucaipa, brokers said. The report found that the Palm Desert area’s retail vacancy rates are one of the region’s highest, about 15 percent.

“We do have most of the affordable housing of anywhere in the state,” said Drew Wetherholt, director of Marcus & Millichap’s Ontario office. “We’ll see corporate America get interested again in the next few years.”

With so much space to fill, retailers are able to be much choosier. Wetherholt said he’s seen vacancy rates drop slightly in power centers and in neighborhood strip centers anchored by good supermarkets, and Crane said a few centers that don’t have grocery anchors are drawing new tenants if it’s a busy corner without traffic congestion.

“The ones that are struggling are the unanchored strip centers,” Wetherholt said.

The rent tenants are willing to pay also dictates whether landlords are able to fill their vacancies. Property owners have continued to cut rents over the last 12 months, although rents are not declining as sharply as they did a year ago.

The average asking rent for a store in the Inland area is $20.52 per square foot, which is about 1.2 percent less than a year ago. In the preceding 12-month period, asking rents declined 3.4 percent.

Grubb & Ellis’ Crane said some landlords are handcuffed in rent negotiations because of the debt they took on when they made deals to build or buy the properties.

“Some centers have a threshold they can’t go below,” Crane said.

Brad Umansky, president of Ontario-based Progressive Real Estate Partners, agreed that the retail market is flat right now. “Some businesses are vacating because they’re just not making it or because their leases are expiring,” Umansky said.

Southwest Riverside County gets similar marks. “If anything, it’s flattened out, and rental rates are still way down,” said Jason Michael, a sales associate for Grubb & Ellis in Temecula. “Vacancy rates have declined, but ever so slightly.”

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