Southern California, also referred to as SoCal, is a mega region including the urban areas of Los Angeles Metropolitan Area, the Inland Empire and Greater San Diego. Approximately 60% of the California population resides in the mega region, including the residents of the two largest cities in the state, Los Angeles and San Diego. Weingarten first entered the California market in 2001 with the acquisition of 19 grocery-anchored shopping centers, seven of which were in and around LA. The company plans to continue to invest in the diverse, expanding market of Southern California.
Widely famous as the headquarters for the United States’ film industry, Southern California has many other large industries driving its economic development, the largest of which is the housing market. DataQuick, a research firm, announced Southern California has posted its strongest August home sales in seven years. The region’s technology and industrial base, coined the Tech Coast, and the multitude of prestigious research universities and other public and private institutions further support the economic development.
As the housing market improves, consumer spending is increasing. The coastal markets with high barriers to entry, higher incomes and densities are generally performing best. Conversely, Weingarten’s Menifee Town Center located in the eastern, inland region, has been successful due in large part to a lack of development and competition during the recession. The Ralph’s anchored center has maintained 100% occupancy and reports high volume sales.
Retail leasing is noticeably improving. Rental rates are increasing due to low vacancy rates and we’ve had greater success on increasing renewals. On an individual level, home values are rising, so we are seeing our tenants’ personal equity increasing. We are still not seeing many SBA-funded deals. Tenants using personal funds and not reliant on borrowed cash is preferred. A greater amount of lease assignments are occurring as well. As tenants are cashing out on their businesses, new owners are stepping in.
SoCal is typically a “first-in” market for many retailers, therefore it sees more emerging concepts than most other regions. Fast casual restaurants have definitely been the stand-outs. The “better burger” concepts seem to have peaked, but we’re seeing a strong roll out of custom, fast-fired pizza concepts across the market (Pieology, Pizza Studio, Blaze, Pizza Rev) as well as a big push for gourmet sandwiches (Mendocino Farms, Firehouse Subs, Jersey Mike’s). Interestingly, there have been very few true “retail” concepts that have come to market outside of the malls or strong lifestyle/fashion-anchored projects. In our typical grocery-anchored, neighborhood shopping center, our tenants are still heavily service-oriented.
Currently, Weingarten’s Southern California portfolio is 96% leased. The vacancy primarily consists of small shop space. Big box spaces are 100% leased; however, we have several mid-range spaces available around 7,500 square feet. Plans will be to either split the space or combine with adjacent space to meet the needs of retailers looking for 10k-15k square feet.
Acquisition/New Development Plans
Our growth strategy goals include selective acquisitions and developments with growth potential, including redevelopment opportunities. We are looking for centers with strong specialty grocer anchors such as Whole Foods, Sprouts and Trader Joe’s. Retailers and grocers are expressing their desire to be in denser, urban areas with strong demographics. We have a strong growth team based out of our Westminster regional office that is diligently working to find new locations that fit the needs of our retailers and consumers.
From a leasing perspective, we will be changing our focus from leasing for occupancy, as practiced the past several years, to leasing for quality and the long-term. In day-to-day terms, this means having a greater emphasis on rent increases, fewer options and generally tighter control for the landlord.
Weingarten Realty, with a strong local knowledge of our assets and markets, predicts continued growth and success in the Golden state.