Clovis News

Valley retail vacancies hurt developers, aid businesses

Sunnyside Marketplace seemed like an opportunity to make easy money in 2006, when the commercial development was planned in southeast Fresno.

Thousands of houses were slated to be built in the immediate area, and the economy was booming.

Now, things don't seem so bright. With only six tenants, the strip center next to a Gb3 is less than half full and the landlord is ready to make deals.

The same is happening across Fresno as commercial developments planned during the boom times are running up against the post-recession reality.

The new spaces -- combined with existing storefronts left empty as retailers closed over the last two years -- have created more retail space in the market than businesses can fill.

"Things just got overbuilt," said Doug Cords, a broker at the Commercial Retail Associates firm in Fresno. "There aren't enough shop tenants to go around to fill these things, and there's so much turnover in shop tenants that it's a risky proposition for developers."

There is an upside, however: bargains for businesses looking to move. That means cheap leases, months of free rent and allowances for tenants to fix up their stores.

On the downside, developers take a loss -- and neighbors are still waiting for stores they thought were coming to their neighborhoods.

Empty spaces

Two new retail developments on Kings Canyon Road in southeast Fresno landed anchor tenants that opened last year, but the remaining spaces have been slow to fill up.

On the other side of town, developers of a mixed-use commercial center on West Shaw Avenue, near Highway 99, have one tenant with another tenant to move in. So confident were they in 2008 that they built the project with no tenants lined up.

And in northeast Fresno, a small strip center anchored by Rite Aid drugstore at Copper and Maple avenues remains empty. Other centers planned for this year never even got off the ground.

Fresno commercial brokers say there is little need for new shopping centers until the existing vacancies are filled.

The Fresno retail market ended the first half of this year with an 11.7% vacancy rate, up from 10.2% for the same period last year, according to a market report from CB Richard Ellis, a commercial real estate company in Fresno. In 2001, the Fresno vacancy rate was a little more than 4%.

Fresno saw a retail construction boom between 2005 and 2007 after years of steady growth in the market, said Cords, at Commercial Retail Associates.

"A lot of these developments were based on housing that was in place and housing expected to come," Cords said. "There was a real frenzy for a period of time and a sense of, 'build it and they'll come.' "

But when the housing bubble burst in 2007, the retail market followed. Storefronts went dark as businesses closed up.

Department stores like Gottschalks and Mervyn's pulled out of the Clovis market, pushing up the vacancy level. At the end of the second quarter this year, Clovis had a retail vacancy rate of 15.2%.

The recent opening of a Kohl's store in Clovis and the announcement that a tenant is in negotiations to occupy another Mervyn's location on West Shaw Avenue is a positive sign for the industry, brokers said.

But it may be short-lived, said Mike Arfsten, commercial broker for Retail California, a commercial real estate firm in Fresno. An increase in tenant activity at the beginning of this year quickly leveled off, he said.

Retail California was working to get an anchor tenant for a new retail shopping center planned at the southeast corner of Fowler and Herndon avenues in Clovis, but the deal fell through. Most of the land remains vacant except for a Chase Bank that is getting ready to open.

Businesses that can afford to move or expand seem to be the only ones making deals right now, brokers said.

Those businesses have the upper hand because they can dictate what they want, and landlords will give in, said Nick Rendino, a retail and investment specialist at CB Richard Ellis.

Rendino said landlords have given tenants up to six months of free rent for signing a long-term lease.

The average lease rate in Fresno was about $1.33 a square foot at the end of the second quarter. That's a 8.3% decrease from the same time in 2009 and a 15.8% reduction from 2008.

In Clovis, the average lease rate is lower, about $1.05 a square foot.

"The small pool of retail tenants that are active are really able to pick and choose areas that they have not been able to go into before," Rendino said.

The newest centers

For Satnam Singh, who owns an Indian grocery store, the developers' troubles are good news.

Singh was looking for an opportunity to move his 4-year-old Indian grocery store -- Shan-E-Punjab -- out of an old space on West Shaw Avenue near Highway 99.

When Sacramento-based developer Buzz Oates started building a mixed-use commercial center on the same street near the intersection with Golden State Boulevard, Singh jumped at the chance to move into it.

The rent is a little higher, but Singh got a free month of rent, and the landlord agreed to help make tenant improvements for signing a lease, which began in July.

His previous landlord did not provide any help improving the building, said Singh, who had to repair water leaks in that store by himself.

"Compared to my old location, this one is really good now," Singh said. "It's affordable rent. It's clean and nice. It's a good location."

Singh was the first tenant at Shaw Business Park, which started construction in 2008. The development company took a nontraditional approach and built the center with no tenants lined up.

That approach is typical for the company, which has enough money to build without having to rely heavily on bank loans, said Tim Mitchell, a development owner for Buzz Oates.

Many developers need to have an anchor tenant signed on for a project before a bank will approve a construction loan, brokers said.

"We always want to lease up quickly, but we knew the project would take time," Mitchell said.

A second tenant, DaVita Inc., a national company that provides kidney dialysis services, signed a lease last month for an 8,000-square-foot space to serve patients on the west side of Fresno.

Another newer retail center in Fresno is the Sunnyside Marketplace, anchored by the George Brown Sports Club, which has nearly 46,000 square feet at Fowler Avenue and Kings Canyon Road.

A State Farm insurance office is in the center, and a new bicycle shop is getting ready to open, but much of the center remains empty. A hair salon is expected to open next, said Walter Smith, senior vice president of retail division at Grubb & Ellis/Pearson Commercial in Fresno.

Smith receives more phone calls from businesses interested in the Sunnyside center than any other property that he leases. It has just been slow going as businesses hold back to see where the market is headed, he said.

Even during the flurry of home construction in southeast Fresno, fast-food retailers and grocery stores acknowledged a demand for service, Smith said.

"Once homebuilding is in swing, there will be a need for retail again," Smith said.