Northern California Power Centers Face Uneven Recovery in 2021

John Cumbelich & Associates, San Francisco, Walmart, Loja, Sprouts
Courtesy of John Cumbelich & Associates

By Meghan Hall

The coronavirus pandemic has greatly altered consumer priorities. Across the region, no shopping center was entirely immune to the changing demands of shoppers, and while some stability has emerged, recovery will be uneven throughout the rest of the year. According to new data released by Walnut Creek, Calif.-based John Cumbelich & Associates, mid- and large-sized retail spaces will continue to face headwinds while smaller format uses and spaces will begin to thrive.

“As an uneven recovery is US leasing markets plays out, a clear trend line that is emerging is the bifurcation in the resilience of large format versus smaller format spaces,” explains the report. “An aggressive re-entry of smaller format users, especially QSRs, drive thru uses and fuel + C-stores, stands in sharp contrast to the tedious pace of leasing activity for large and mid-sized boxes.

Prior to the pandemic, large format spaces were typically occupied by a mix of theater, fitness and entertainment uses, the same industries that have been forced to pause operations as social distancing and shelter-in-place orders took effect. As a result, demand for such space has been largely stunted. 

However, some of the biggest “winners” of the retail sector this past year have been big-box retailers. Grocery stores, which the report has dubbed as the “most essential and implacable of anchor tenants,” have seen record sales and profits, increasing the likelihood of more grocery store offerings in the future. Other businesses that have been deemed essential, from hardware stores to pharmacies and garden centers, have also made it through the pandemic largely unscathed.

Small retail spaces, however, have fared decently thanks to the above business modifications. Drive throughs, mobile ordering systems and delivery drives have allowed some businesses to generate as much, or even more revenue than pre-COVID-19, states the report.

“Big wins by clever and opportunistic brands is the most under-reported story in retail today.

Indeed, the current state of affairs in the economy has created a new set of darlings in retail, as select retail and dining brands have demonstrated themselves to be both essential and internet-resistant,” states John Cumbelich & Associates. “Expect that savvy commercial owners will be re-positioning their tenant mixes going forward to maximize the stability and success of their assets around these winning brands.”

The first quarter of 2021 did present one promising metric: Despite occupancy losses in 10 of the last 12 quarters, occupancy rate has held relatively stable over the past several months, changing from 92.7 percent to 92.6 percent during Q1.

The South San Francisco Bay Area had the lowest occupancy rate at the end of the first quarter, although its occupancy is on the rise. Currently, the South Bay has 1.665 million square feet of power center retail, and its occupancy rate sits at 87.37 percent. The East Bay had a slightly higher occupancy rate, at 92.33 percent for its nearly 5.2 million square feet of inventory. San Francisco Proper and the Peninsula had an occupancy rate of 93.14 percent; however, it was the only submarket to see a decline in occupancy during the quarter. The North Bay had the highest occupancy rate, which held stable at 95.64 percent.

Some of the largest leases of the quarter included Loja’s decision to take 350,000 square feet in Pleasant Hill, as well as Walmart’s decision to take 50,331 square feet in San Ramon. Sprouts took 48,137 square feet and 32,620 square feet in Lodi and Newark, respectively.  

Until fears of contracting and spreading COVID-19 are alleviated, however, John Cumbelich & Associates predicts that overall big box leasing will remain difficult. Regional recovery will likely be gradual as a result, but John Cumbelich & Associates notes that there will be plenty looking to take advantage of the market.

“Dramatic and fast changing market conditions are quickly serving to sort out the new winners in retail,” the firm notes. “Look for savvy REITs, investors and owners to re-position their assets around these new winners to collect a bigger slice of tomorrow’s commercial rent stream.”

As of this writing, John Cumbelich & Associates had not yet returned The Registry’s request for comment.

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