Urban infill in high demand.

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What area is your expertise?
Generally speaking, my expertise is in multi-tenant retail centers with a mixed-use component as well as traditional grocery anchored centers. The areas that I cover are Los Angeles and Orange County, Calif.

What trends do you see presently in retail development in your area?
Since land costs have risen so dramatically, the general trend that we have seen is for more vertical development with a mixed-use component.

What type of retail product is doing well in your area?
Urban infill projects are doing very well. The tenants are not being aggressive like they were over the last few years so the focus has moved back to the urban infill locations.

What retailers are new to your area?

Clearly Tesco has made a big splash in our market, which has affected the plans of many of their competitors with regards to expansion. While we hear their expansion has stalled, we still believe that it is too early to tell how their entrance in the market will affect the grocery business.

Who are the active retail developers in your area?

There are many, but it’s very fragmented. Caruso, and CIM are some of the bigger players but there are others.

Please name one or two significant retail developments in your area. What impact will these projects have on the market?
Caruso’s project in Glendale is one that we are watching as it is really one of the bigger deals that have come on line over the last few years. Also, DJM’s Bella Terra project in Huntington Beach is one to watch as well.

Where is the majority of development taking place? Why is this area doing well?
The most interesting area for development right now would have to be Hollywood. It’s really the renaissance of an area that has been depressed for many years. With the amount of unique projects coming on line, we expect that the area will continue to trend positively for years to come.

What area do you expect to be the next big retail development market? Why?
Again, given the land constraints, I don’t see significant development in any one area, but rather, we are seeing projects across the county.

Please describe the retail leasing activity in your area.
Retail leasing has been slow over the last 2 quarters. Tenants are still doing deals, but they are not nearly as aggressive as they were over the last few years. This is the direct correlation to the overall economy, and we expect that contract and asking rents will go down for the first time in many years in 2009.

What major leases have been closed recently?
We are seeing a pullback in leasing and most new deals have been pushed back till 2010.

Please give a measure of retail vacancy rates and a measure of available sublease space.
It’s hard to gauge the exact amount of sublease space and vacancy in LA County in General, but we are noticing an up tick in the amount of sublease space hitting the market. Most of the data we are seeing is really trailing the actual market by about 6 months. We expect that vacancy rates will continue to creep up, but no major increases are expected. The majority of problems in the leasing environment are deals that were signed at $3 to 4/SF NNN rent. Those tenants are going to suffer as their sales decelerate.

Would you like to make any additional observations about the retail market in your area?
Retail has had a great run and will continue to do well, but many of the projects that were done over the last few years may suffer in the short term as the consumer pulls back on discretionary spending. Moving forward, property owners are going to have to be more willing to negotiate and work with their tenant base in order to keep projects full.

Submitted by Geoff Tranchina, vice president with the West Los Angeles office of Sperry Van Ness. Published Online 05-22-08.

Geoff Tranchina

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