Retail leasing in the Inland Empire is slowly meandering its way back to a healthy stride. The gamut of activity is still centered around the best opportunities and the strongest centers, but occupancy levels are stabilizing and overall there is a sense of cautious optimism. The retail vacancy rate has remained flat for the past two quarters of 2011 at 8.8 percent. This is a positive trend, however, compared to rates of 11 percent and higher over the past few years.
We have also seen new tenants expanding within this market, taking advantage of a lenient leasing climate and landlords anxious to fill their centers. Tenants like Family Dollar, Dollar General, Fallas Paredes, Chase, America’s Tire, O’Reilly, Autozone, Pep Boys, $99 Cents Only, Planet Fitness and Crunch Fitness are actively pursuing junior anchor and pad buildings in shopping centers. Meanwhile, Forever 21, T.J. Maxx, Steinmart, Hobby Lobby and even Kaiser Permanente have absorbed some of the largest vacancies in this market over the past year. Wal-Mart has broken ground on sites in the Victorville trade area and more are on the way, including a few Neighborhood Market locations that Wal-Mart has secured over the past year.
While this is positive news, shops space vacancies in traditional neighborhood centers and specialty centers have continued to be very challenging to fill. Shopping center vacancy rates, along with specialty centers, still remain above 11 percent. The trend for shop space leasing has been quick turnover for the best spaces in the best centers when they come available, while lesser quality space – even in the strongest centers – continues to idle on the sidelines.
On the sales side of the equation, the Inland Empire region experienced a rise in retail investment sales activity from the previous year. The San Bernardino County market had more activity than Riverside County, with a total of 133 transactions compared to 113 transactions. As a result, San Bernardino County benefited from an increased capital flow into the retail properties, with more than $165 million of transactions compared to Riverside’s $137 million.
Many of these transactions involved owner-user sales since SBA financing creates a significant incentive for many users to try and own their own building. Overall, the single-tenant market still remains strong with cap rates generally ranging from 6 percent to 8 percent depending upon the credit of the tenant and the location. Multi-tenant cap rates generally range from 7 percent to 9 percent, although there are far fewer transactions and each one seems to have its own story.
Recent notable transactions include a 76,700-square-foot single tenant Kohl’s in Upland that sold for $15.4 million at a 6.25 percent cap rate; two Rite Aid properties sold in Wildomar and Ontario at 8.89 percent and 7.91 percent cap rates, respectively; the 8,200-square-foot multi-tenant Sierra Center in Fontana that sold at a 7.9 percent cap and $427 per square foot; and a 60,000-square-foot Fresh & Easy anchored property in Murrieta’s Margarita Center that sold for $8.5 million.
We anticipate 2012 to be the first year of positive absorption since 2007 in the Inland Empire. We also forecast that shopping center sales will increase as the leasing market stabilizes.
— Brad Umansky, president, Progressive Real Estate Partners in Ontario