Report: Bay Area Regional Retail Market Faces Rising Vacancy Rates, Uncertain Future

Bay Area Regional Shopping Center Quarterly Report, John Cumbelich & Associates, Bay Area, South Bay, East Bay, North Bay, San Francisco Peninsula, The Plant, Santa Rosa Marketplace, Santa Rosa, Best Buy, Trader Joe’s, PetSmart, Burlington, BevMo!, Old Navy, Sports Basement, Amazon
Courtesy to Varun Yadav

By Kate Snyder

Rising vacancy rates, interest rates and construction costs paint an uncertain future for the Bay Area’s power center assets, according to the Bay Area Regional Shopping Center Quarterly Report by John Cumbelich & Associates for 2022’s third quarter. For the larger vacancies, the report doesn’t give an optimistic picture and argues that softening rents, significant economic concessions or both appear to be likely consequences of the “deteriorating retail leasing paradigm.”

John Cumbelich & Associates is a Bay Area firm that provides commercial real estate services to Fortune 500 retailers as well as owners and developers of retail commercial properties.

According to the firm, the power center “flagship” inventory comprises 25 assets spread across the region’s four major submarkets and nine counties that all together total more than 13 million square feet. The five assets within the data set with the highest total vacancy were all located in the South Bay and East Bay submarkets – those five assets alone represented approximately 383,932 square feet of vacancy, or 41.7 percent of all vacancy across the region in the third quarter.

The report shows a significant increase in overall vacancy during the third quarter. More than 110,000 square feet in new net vacancy across the region pushed vacancy rates above seven percent for the first time since the peak COVID era of late 2020 and early 2021. Specifically, leasing difficulties in the South Bay dragged regional occupancy data lower. In one example, The Plant in San Jose ended the quarter with about 127,648 square feet of vacant space, which comes to nearly 20 percent vacancy within its total of 522,000 square feet.

“Despite leasing gains that occurred between late 2021 and early 2022, vacancy pressure has remained stubbornly persistent and difficult to solve,” the report states. “The balance of the South Bay market was relatively stable, but the leasing challenges at The Plant proved to be an anchor on leasing data in the submarket.”

At the other end of the spectrum, the three best performing assets in the third quarter were all located in the North Bay submarket, with a total of 4,699 square feet of vacancy compared to 1.5 million square feet of inventory. The report suggests that based on the data, “the historically high barriers to entry that have limited power center development in the North Bay counties have proven effective in supporting high occupancy levels.”

In the North Bay, the Santa Rosa Marketplace leads the charge with a 100 percent occupancy rate. The shopping center is anchored by Best Buy, Trader Joe’s, PetSmart, Burlington, BevMo!, Old Navy and Sports Basement.

In total, the North Bay has an occupancy rate of nearly 98 percent, with 60,797 square feet available out of an inventory of 2.7 million square feet, according to the report. In second place was the San Francisco Peninsula with 193,870 square feet available out of about 3.6 million square feet and a 94.6 percent occupancy rate. At a nearly 91 percent occupancy rate is the East Bay, with 481,143 square feet of available space out of a total of approximately 5.2 million square feet. The South Bay was recorded at about an 89 percent occupancy rate – the only region to dip below 90 percent – with 184,099 square feet available out of about 1.7 million.

“Not surprisingly, the lower barrier to entry East Bay and South Bay markets have enabled an oversupply of inventory that has struggled to maintain high occupancy levels in sub-optimal leasing environments,” the report states. “With an uncertain economic outlook driven by rising interest rates and looming recession fears, the outlook for larger vacancies in the Bay Area is troubling. As no new major users have announced plans to roll out large-format Bay Area stores, and others like Amazon are re-thinking expansion plans, the stable of users to solve current vacancy challenges looks meager at present.”

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