SAN DIEGO—A large destination retail environment that provides an experience that shoppers can't get at Fashion Valley Mall will both draw vendors and justify the parking expenses in Downtown San Diego, JLL's EVP, retail brokerage lead Craig Killman told RealShare San Diego attendees Wednesday. Panelists for the session “Retail: The Next Chapter” talked about the retail trends that are taking hold now and which have legs for the future in this market.

Moderator Pamela Flora, director or retail research for Cushman & Wakefield, said e-commerce is growing faster than traditional retail, but still only represents 8% or 9% of total retail sales. She also pointed out that San Diego has maintained a lower vacancy rate than many markets in the region. She asked the panelists for some of the trends they are noticing.

Jason Wood, project principal for Cisterra Development, said there has been a transition to more food and beverage tenants. “The real thing is going out and posting about it—what you're eating or doing—on social media. It's all about entertainment, fun and experiential.”

Wood added that Downtown needs a place, a destination, here people want to go and shop, and there's no good place right now in that submarket to have a shopping experience. Carrie Bobb, VP of CBRE, said Downtown was never one of the top San Diego trade areas to expand until now. “Someone needs to put a large contiguous space together for retail expansion.”

Killman said it's all about critical mass, and without that, it's hard to get retailers to take a leap. “We need a large retail environment to be the center for attracting retailers.” He added that retail follows rooftops, and as that number continues to grow, it needs more population. Also, parking Downtown is expensive. “People aren't going to drive past Fashion Valley to go Downtown and pay to park for product, but they will pay to park for an experience.”

Wood said there are various retail corridors developing throughout San Diego, and retailers need to be on one of those Downtown. “We told Civic San Diego that every corner can't be retail—you need centers, J St., Market St., 5^th Ave.” Flora concurred, adding that hip streets are in Little Italy, the East Village and North Park, to name a few.

Bobb said there are some more urban-influenced projects in the suburbs as well, such as on South Cedros in Solana Beach (where West Elm just opened on Wednesday). “Projects try to take on a Main Street feel. You want that urban influence” in a suburban environment.

Killman pointed out that Carlsbad Village is another up-and-coming hip retail corridor that is not overbuilt. “It's a finite environment that's more of a destination.”

Flora shifted to the craft-beer industry, which continues to be strong in this market with 125 existing breweries and more on the way. She asked the panelists if this market is mature or if there is room for growth, and Bobb said, “Yes, if you can execute on product really well, if the food and beverages are really good. There's more space for people there, but it's really hard to do.” She noted that food and beverage tenants are finding pockets of space on Cedros and in other neighborhoods, creating an environment where it's “fun to go find them.” Killman said there's been some dropoff in these tenants as the market hits a degree of saturation, “but the good ones will stay around.”

Flora turned to the topic of mixed-use and whether it's the wave of the future in retail development. Wood said, “We just seem to keep stumbling into mixed-use.” With his company's development of DiamondView, which recently set a Downtown record price per square foot of $661, Wood said it was difficult to get financing from one source for all parts of the project. However, he added that many lenders are putting together funds for mixed-use projects in the future.

Bobb said the trend is definitely going toward mixed-use “without a doubt, but the cool factor is needed.” She added that all of the product types need each other, and the best iconic projects going forward will be mixed-use.

Killman said mixed-use projects used to be forced down developers' throats, resulting in at least one part not being done particularly well, but architects now need to be thoughtful about it all being functionally relevant. Wood said, “We've figured out how to develop our mixed-use projects to make them inviting.”

At Westfield UTC, where CBRE recently relocated its offices, Bobb said the focus has been heavily on hospitalitiy. “Rick Caruso is the mastermind behind this whole concept,” where there are complementary valet services, a dry-cleaning account on record and other perks for tenants.

Flora asked for retail's recipe for success, and Killman said it was “creating an experiential environment. As residential gets more expensive, people want to go to an environment to hang. Does this translate into shopping bags? Maybe not—I don't think, for example, that UTC should charge to park in 2018” as it is planning to do.

Bobb said the new trends in retail present a great opportunity for mom-and-pop businesses to offer a “cool factor” in retail projects as a one-off experience for customers. “There's 5% vacancy in San Diego retail, and you want a nice blend of credit and mom-and-pop tenants—that draws people into the project.”

Killman said the challenge to San Diego retail is creating a critical mass to be able to draw in customers and ultimately be able to afford the higher retail rents. In the future, he sees autonomous vehicles affecting development, since parking will not be needed, and this will change how consumers interact with retail. He added that movie theaters succeeded in bringing people back by offering a luxury option in Cinepolis, followed by a more mid-priced luxury option offered by many theaters today (reclining leather seats and obstacle-free viewing). These changes made going to the movies an event, an experience once more.

Flora said the lines are starting to blur between center types such as strip centers, regional centers and malls to a more fluid tenant strategy where tenants are more concerned about the class of a center than its classification. Bobb added that landlords are also shying away from giving exclusives to tenants and that there is more of a sense of “We all have to trust each other” to support each other's businesses without competing within the same center.

Killman pointed out that Carlsbad Village is another up-and-coming hip retail corridor that is not overbuilt. “It's a finite environment that's more of a destination.”

Instant Insights /

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