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Retail Leasing Poised for Comeback?  

By Ed Moosbrugger

March 3, 2010 -- After a very tough year in 2009 for the retail leasing market, some signs of hope have appeared in Downtown.

Most tangible is the lease by off-price retailer T.J. Maxx of the big space on Fourth Street that was vacated by Circuit City. There are also reports that potential retail tenants are more actively looking to rent as the economy shows signs of improvement.

“The last three months have been remarkably better in terms of people coming to look,” said Tony Dorn, broker/agent with the Beitler commercial real estate company. Dorn handled the T.J. Maxx lease and is representing the former Borders store property on Third Street Promenade.

He noted that despite the sour economy, there was very good competition to secure the former Circuit City site, with Nordstrom Rack also among those who were interested.
Still, there is a long way to go.

“There is some increased activity, but it's pretty slow moving,” said Robert O. York, a retail consultant for the Bayside District Corp.

There has been so little retail leasing activity that people are trying to figure out what the realistic market rent level might be, he said.

“Landlords are now realizing that rents need to come down to attract tenants,” said Vince Muselli of Muselli Commercial Realtors.

Rents are down about 10 percent and vacancies have risen to about 5 percent, compared to 2 percent before the downturn, Muselli said.

Although there are some positive signs, Muselli expects things to remain difficult for a while. “I think there will be more shakeout of tenants over the next several months due to the business climate,” he said.

Last year was the worst in many years, with “everybody holding their breath” and very few leases being signed, said Barbara Tenzer of Tenzer Commercial Brokerage Group and a member of the Bayside District Board.

Though this year will be better, it won't compare to the heady market before 2009, when “people were beating down the doors” to come to Downtown, she said.

“Vacancies are up and rents are down,” said Tenzer, noting that the rent has just been reduced on the former Gaucho Grill space on Third Street Promenade, which she represents. “I'd say rents have to be reduced or we won't make a deal.”

 

Still, Downtown Santa Monica remains a preferred spot for retailers that are looking to expand, York said.

The good news, Dorn said, is that national and international retailers flying into Los Angeles to look for space rate Third Street Promenade among their top two choices, along with The Grove shopping center.

Tenzer reported many people coming from overseas to look, lured partly by lower rents and the weak U.S. dollar.

In addition to the T.J. Maxx store, Fourth Street will receive a boost after Pottery Barn relocated from the Promenade to a space near its sister store West Elm.

“They will help the street become more important in the retail world,” Muselli said.
T.J. Maxx, which is expected to start construction soon and be open by spring, will broaden the offerings Downtown, while Pottery Barn is expected to act as a retail anchor for Fourth Street, York said.

In addition, the BoConcept Danish furniture store on Santa Monica Boulevard has reopened.

But Downtown will get its biggest boost when Santa Monica Place – which is making good progress with its leasing – reopens in August after a major remodel, York said.

The 30-year-old mall isn't the only longtime establishment undergoing a makeover. Although many retailers were hesitant to commit when the economic downturn hit, Eddie Guerboian, owner of Readers Fine Jewelers, went ahead with his dream to expand.

In the midst of a national economic meltdown, he nearly tripled the size of his store on the 300 block of Wilshire Boulevard from 800 square feet to more than 2,000 square feet by taking over space next door vacated by a pharmacy and designing a new store.

After Guerboian made the deal to expand, his landlord asked if he wanted to back out, but he decided to go ahead.

“I believe in America,” Guerboian said. “The land of opportunity still exists. You just have to work harder.” He credited the landlord with helping make the expansion possible.

After closing for four months for construction, the family owned store reopened in June 2009. Guerboian, a former chair of the Santa Monica Chamber of Commerce, said the better exposure from more window space has helped him pick up some new clients.

 


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