Steady tenant demand coupled with a lack of new inventory is keeping the value of commercial retail space steady, said brokers and investors who specialize in those spaces. Bert Able, an NAI Capital broker in Santa Clarita, said that in regions that have the population density to support the retail businesses, prospects are good. “Units in the Santa Clarita, we have to beat tenants away with sticks,” he said. “Those rents have increased 5 to 6 percent over last year, and aren’t negatively impacted by the current economy,” Able said. He gave an example of $4-per-square-foot spaces that are now up to as much as $4.30 per square foot. Marcus & Millichap broker Brandon Michaels remarked that through the Valley the balance of inventory and demand has lessened the effects of downward pressures on prices. “Values are holding,” he said. “It’s a stabilized market.” In his firm’s annual report forecasting the retail market for the region, it said “Retail properties throughout Los Angeles County will record healthy performance in 2008, despite moderating economic expansion. Land constraints and development costs will keep retail construction below the market’s historical average.” Citing the coming Americana at Brand (due to open May 2 with 450,000 square feet of retail space in the 900,000-square-foot development) as having little overall impact on inventory because 90 percent is pre-leased, the forecast predicted “strong tenant demand” would drive “healthy rent growth,” with some slowing expected as a reflection of “modest consumer spending” in the coming months. That present economic atmosphere is having some affect upon sales and leases, Michaels noted. “On the rental side, it’s taking longer to find tenants,” he said, adding that there’s been “a shift in the market on how lenders view properties. They’re not giving out as much money.” He noted a center that sold recently for $2.5 million, and it’s on the market now, he said, for $100,000 less and it’s not selling. An economic downturn can be easier on the retail real estate market than, for example, office space. Rickey Gelb, managing partner of real estate development and management company Gelb Enterprises, said, “Retail space is different than office space when hard times hit. Office tenants often downsize.” He cited a contemporary, specific example of mortgage brokers merging with two or three other brokers who can share a space easily since the work is compatible. Or, he said, “they can work out of their home” in a way that retailers cannot, thereby keeping pressure on the demand side of the equation. His firm’s centers are full, he said, with “lots of mom and pops who just weather it out and work harder” when times get tenuous. Primary to his lack of vacancies is the price point of the centers, he said. “We keep our rents competitive, in the $1 to mid-dollar range,” Gelb said. “We found when we start raising our rents we put people out of business. We’d rather be full and have the cash come in on time,” he said. “Since we’re not sellers,” Gelb said, they don’t have to keep rents high to keep the centers marketable. Able commented that the mix of retailers is a key to stability in a center. “With the right elements, a neighborhood retail center is somewhat recession-proof. Those are the neighborhood centers with a supermarket anchor and places where people can meet their basic needs,” he said “People will always need a place to get their medications, a place to get a haircut, get their nails done, get their dry cleaning done,” Able said. “Centers that are vulnerable are those that depend heavily on disposable income, like fashion retailers,” he said. On the horizon, Able sees growth to the north. “It’s like the Horace Greeley quote ‘Go West.’ Go north, that’s where it’s going to go,” he said. Working in this market since ’95, he says it seems inevitable that the Antelope Valley is where future development will occur. “There is unlimited land available for growth,” he said. “You can see vacant land in Santa Clarita, but it’s all spoken for.” Natural business growth cycles and “the search for affordability,” he said, will fuel the northward expansion. “The business that wants to expand, that’s where they’ll go because that’s where the space is,” Able said. He cited the principle of supply and demand in recounting an example: “A person looking for industrial space has a baseline of $1 square foot, but faced with leases at $25 square foot, that’s economically unrealistic. So that business will move out there, simultaneously, that’s where his workforce lives,” Able said. Driving the “unlimited potential” is housing needs, he said. “The region is dramatically short of housing. There is not enough for people who want to live here.”
