Bay Area Retail Fractures Along New Economic Lines

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At the same time, Wald said, he has begun to sense investor weariness with the low yields associated with a fixation on safety. He predicted 2013 would be the year in which greed overcomes fear and investors push farther out the risk spectrum. He cited recent trading levels near 14,000 reached by the Dow Jones Industrial Average as an indication.

Housing’s recovery also bodes well for merchants and thus retail property owners.

“Furniture stores, do-it-yourself retailers, hardware stores—they are all related to housing. I don’t see them back in the market this year, but by next year, Lowe’s, Home Depot will be back in the market, and some furniture chains are also looking that way,” Brown said.

New home starts as expressed in building permits rose by a third nationally last year, but were up 65 percent in the San Francisco metropolitan area that includes Oakland and Fremont and 83 percent in traditional Silicon Valley’s Santa Clara County, according to Terranomics research.

Still, historic assumptions are being tested. The city of Tracy anticipates a retail sales tax boon from the new Amazon.com business, based at least in part on its experience with an existing Crate & Barrel fulfillment center. Fulfillment centers, unlike warehousing or distribution facilities, are retail points of sale where not only are customer orders received but they are filled.

Tracy’s general sales tax revenue rose 20 percent in the 2011-2012 fiscal year and nearly 10 percent the year before that. Administrative Services Director Jenny Haruyama said, “While I can’t disclose the amount, the [Crate & Barrel] fulfillment center is a very strong sales tax generator and generates a significant amount of revenue collected under the miscellaneous retail segment.”

Tracy already has “a handful” of other one million-square-foot industrial buildings from which retailers could provide one-day delivery to the Bay Area “and maybe even faster,” said City Manager Leon Churchill. Since the Amazon deal was announced in late January, “the phone rings a lot more,” Churchill said. “It was trending that way anyway, but it has definitely picked up. Now we don’t have to explain or describe our community much. They know.”

Meanwhile in Mountain View, home to the valley’s rapidly growing Google Inc. and adjacent to Stanford University, Merlone Geier has signed contracts to buy two additional parcels now occupied by a BevMo and a Ross Store adjacent to its existing development. The company has entitlements to build another 175,000 square feet of retail on its existing property, and tenant demand is stiff, Grehl said. But the company is rethinking and embellishing its plans given its new land wealth and plans to incorporate offices and a theater.

“We will be taking the proposal to the city of Mountain View, and I will submit that development application [this] week,” Grehl said.

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