A Retail Rush

The demand for housing Downtown has helped reshaped the retail environment."Go back two or three years ago, the majority of calls came from restaurants wanting to capture a daytime business," says Derrick Moore, senior associate of Retail Properties, Urban Redevelopment Group with CB Richard Ellis.

"As L.A. Live took shape and more housing came online, we are starting to talk with soft goods retailers such as Nike, the Gap, and Urban Outfitters," Moore says. "There has been a lot of interest. Ralphs has been responsible for solidifying a lot of that interest."Some 9,347 residential units have been built since 1999, with a total inventory of 12,258 units as of the third-quarter of 2007, and an additional 7,212 under construction, according to the Downtown Center Business Improvement District. All of this new construction is expected to bring Downtown's population up to 50,000 by 2015.

"Ralphs never would have come [to Downtown] if they didn't think we had achieved critical mass," says Carol E. Schatz, president and chief executive officer of the business improvement district.

Schatz says 1999 was a crucial year for Downtown with the passage of an adaptive reuse ordinance and the opening of Staples Center. After the ordinance passed, developers began renovating older buildings Downtown into rental units and with retail through the ground floors. Moderate to upper income housing has joined the mix, meaning more residents, more retail.

"The basic formula, that retail follows beds, is what has caused a re-emergence of retail development," Schatz says. "The first indication that the residential market was having an effect was when Macy's opened a mattress department about four years ago."Schatz says early on retail development was geared toward entertainment and sports with restaurants and bars in the South Park area, near Staples Center.

"Now restaurants and nightclubs are being followed by more traditional retail," she says.The more traditional retailers have been confined in recent years to two malls around the financial district. Macy's Plaza at Seventh and Flower streets houses the likes of Victoria Secret, Limited Express, Bath & Body Works and Lady's Foot Locker. An outdoor mall at Seventh and Figueroa streets, called 7th & Fig, contains Ann Taylor Loft, Panda Express, Morton's steak house and Starbucks.

Moore says 7th & Fig, which is owned by Brookfield Properties, was expected to undergo a complete renovation. He says the 300,000-sf former Robinsons-May store was expected to be remodeled to attract a big box retailer, such as Target.

"It's in the planning stages," Moore says. "They've done community outreach and [conducted] focus groups. There has always been a strong retail presence on Seventh Street between Figueroa and Olive."

Schatz says her organization has been working on attracting a big bookstore to Downtown. She says there have also been a number of smaller dry goods stores and boutiques opening in recent months.

"This is a very important sign that the retail environment is continuing to grow," she says.

Amir Araghi, a research analyst with Grubb & Ellis, says the opening of the Nokia Theatre, coupled with the opening of the Ralphs Downtown, "has ushered in a fresh breath into the market."

"Encouraged by the early success of Ralphs and other Downtown retailers, developers will move to meet the needs and demands of the growing residential base with numerous new projects," Araghi wrote in his Los Angeles Retail 2008 Forecast report.He cautioned that the retail market will see moderate activity as interest and demand will remain high, but the tightening credit market will make purchasing product much more difficult. "The effects of an economic slowdown will be felt directly in the retail market," Araghi wrote.

Despite the success of both malls and the addition of small boutique stores, there is no retail center in Downtown Los Angeles. The area is made up of a series of neighborhoods, including the financial district, the fashion district, Bunker Hill, South Park and the Historic Core, which is home to discount stores.

The recent project that has received the most attention is L.A. Live, next to Staples Center in the South Park neighborhood. The $2.5-billion development will be owned and operated by the Anschutz Entertainment Group.

The project, which is being built in three phases, contains the Nokia Theatre, ESPN's regional headquarters and a Ritz-Carlton. Its retail component will be entertainment oriented, with several restaurants, nightclubs and coffee houses.

Across the street from Staples Center will be the $2.2-billion L.A. Center development. Developed by the Moinian Group on Figueroa and 11th streets, the mixed-use project will feature 250,000 sf of retail and entertainment with 860 rental units and a 220-room hotel. Construction was expected to begin in late 2008, says Howard J. Samuels.

"It's an ideal complement to L.A. Live," says Samuels, founder of Samuels and Company Inc., which is the leasing broker for L.A. Center and assisted in leasing more than 166,000 sf of space at L.A. Live.His company is also leasing 25,000 sf of ground-floor retail at the AT&T Center, located east of Staples Center, which includes Starbucks, Subway and FedEx Kinko's.He says Downtown Los Angeles has traditionally been underserved by many retailers, including supermarket chains.

Samuels says he has had discussions with Tesco Plc., owner of Fresh & Easy Neighborhood Market, and Whole Food Market Inc. about leasing space in L.A. Center.

"They've seen the success Ralphs has enjoyed and are saying maybe I could do a location Downtown," he says. "We would love to have Tesco. However, we think any supermarket that opens in L.A. Center would complement Ralphs."

Speaking of Ralphs, the store has been open six months and still ranks within the top 15% of the chain's 266 Southern California stores, according to a company spokesman."The store continues to do well and far exceeds our expectations," says Terry O'Neil, director of public relations with Ralphs Grocery Co. "It is one of our best stores in terms of sales and customer volume."

O'Neil declined to release specific sales figures for the store. He says six months after it opened the store continues to draw customers from neighborhoods west of the 110 Freeway and east of the Los Angeles River.

"What took us by surprise is the amount of business we did over the weekend," O'Neil says. "We anticipated the store doing well Monday through Friday with a business crowd, but what we didn't expect was Saturday and Sunday to be the busiest days."

The 50,000-sf store, one of the chain's upscale Fresh Fare gourmet markets on the ground floor of the Market Lofts at Ninth and Flower streets, offers customers a pharmacy, dry cleaner, organic foods, and a full-service meat and seafood departments.

"We are always tweaking with the product mix," he says. "The Downtown store is one of three stores to offer wine tasting. It is the first [Ralphs] to offer a full--service catering department."

O'Neil confirmed the company was looking at opening a second store Downtown, possibly in an area that is part of the Grand Avenue project.

"With the growth of Downtown…there is definitely room for more stores," he says.The Grand Avenue project, a $1.8-billion project developed by the Related Cos. will be built in several phases. The first phase will offer 250,000 sf of retail, including a 45,000-sf grocery store, a health club, a bookstore and seven restaurants. By the time it's completed, the development was expected to offer 900,000 sf of retail space.

Samuels says more retail should follow the construction of these projects."I feel someone could develop more than a million sf of retail space if it were available," Samuels says. "There is also an opportunity to attract big-box retailers."