Retail's Real Estate Glut is Growing | Invest & Innovate | Steve Levy | Almanac Online |

Local Blogs

Invest & Innovate

By Steve Levy

E-mail Steve Levy

About this blog: I grew up in Los Angeles and moved to the area in 1963 when I started graduate school at Stanford. Nancy and I were married in 1977 and we lived for nearly 30 years in the Duveneck school area. Our children went to Paly. We moved ...  (More)

View all posts from Steve Levy

Retail's Real Estate Glut is Growing

Uploaded: Apr 21, 2018
That is the headline in a Business Week article this week.

Last year 105 million square feet of retail space was announced for closure and this year so far the total is 77 million square feet in just the first three months.

Readers are familiar with some of the names of famous stores--Toys R Us, Sam's Club, j Crew and a host of others including some Sears and Macys stores locally

We see it in the region as well with the closure of the Vallco Mall and repurposing under way to include housing and a smaller more diversified retail mix,. The same is true in the Hilltop Mall in Richmond.

Business week reports that the U.S has 24 square feet of retail space per person, several times more than in most developing countries.

Stanford Shopping Center seems to be doing well based on strong tourist sales but is also changing its mix as the new Tesla store indicates.

And when I walk downtown I see space that has stayed vacant for a long time and to my eye more vacancies than since the strong job growth began.

If it were just high rents, that would not explain the widespread store closings in areas where rents are not high and the downsizing and move to online of chains here and across the country.

If it were just parking availability that would not explain empty mall space around the country where parking is ample including Vallco and Hilltop.

A long term trend seems to be emerging where online sales growth far outpaces store sales growth though it is still not a large share of retail--but compound growth over 10% a year will move the online % up steadily.

And with store closings and excess space, owners may seek non retail uses including housing that provide a better return.

It will be interesting to see how this plays out in Palo Alto and surrounding communities.

Comments

 +   10 people like this
Posted by young and dumb, a resident of Midtown,
on Apr 21, 2018 at 10:02 pm

Is it really glut because we simply have too much, or commercial property owners being overly ambitious and asking for sky-high rents in hot residential areas? What does commercial tenant space run for on average in downtown Palo Alto?


 +   8 people like this
Posted by stephen levy, a resident of University South,
on Apr 22, 2018 at 9:27 am

stephen levy is a registered user.

@ young and dumb

You raise a question that others have raised.

It is certainly possible that retail rents in expensive areas like Palo Alto affect retail location decisions. But that is not in conflict with the state and national trends on store closings and empty retail space.

Take the case of University Arts. They closed their Palo Alto location and moved to Redwood City. It is reasonable to assume that rent increases played a part though parking may also have been an issue.

Last week University Arts announced the closure of their downtown San Jose facility--right in the midst of a much larger market area than PA and one that will soon explode with new jobs and residents. They are consolidating into their Redwood City facility. The closure in a soon to be fast growing location seems consistent with overall slow or declining demand for their wonderful products and services in store locations.

Just as the improvements in mobile phone photography have cut into thew demand for camera/photography store locations.

Minimum wage increases and difficulty in hiring workers also play a part.

It is a complex issue but the growth in distribution centers and the BW story above point to a trend that planners need to take seriously.


 +   5 people like this
Posted by Curmudgeon, a resident of Downtown North,
on Apr 22, 2018 at 1:07 pm

Is there any hope that office real estate will follow suit anytime soon, and relieve Palo Alto's overdevelopment woes? What has happened to the muchly touted telecommuting revolution?


 +   3 people like this
Posted by Gale Johnson, a resident of Adobe-Meadow,
on Apr 22, 2018 at 1:25 pm

Gale Johnson is a registered user.

I don't do this very often but this is one time I agree, for the most part, with Steve on this issue. I wrote a long, well thought out comment, and tried to post it, but it got lost/deleted. Why? Why am I being asked to enter a verification code? I'll write it all over again, then save it, copy it, and try to enter it again, paste it, when I am in good stead with PAO. I'm a fully paid up subscriber. Why am I not being accepted and treated as such, so I don't have to enter a verification code? Please PAO, help me out and fix this problem!


 +  Like this comment
Posted by stephen levy, a resident of University South,
on Apr 22, 2018 at 1:46 pm

stephen levy is a registered user.

Sorry Gale that happens to me often and even in this post I have to enter a code, which is case sensitive.


 +   5 people like this
Posted by resident, a resident of Downtown North,
on Apr 25, 2018 at 9:40 am

Are landlords excessively raising rents on retail businesses to force them out so the building can be converted to office space?


 +   1 person likes this
Posted by stephen levy, a resident of University South,
on Apr 25, 2018 at 12:51 pm

stephen levy is a registered user.

@resident

This is unlikely for two reasons.

Palo Alto has a retail preservation ordinance in response to this possibility,

And in the downtown and Cal Ave shopping areas, there is a strict limit on new office development of any kind.

Moreover our city has two centrally managed retail centers--Stanford and T&C that provide stiff competition in terms of variety of selection and parking.

As the article points out store retail (not online or restaurants) faces challenges in many areas around the country.


 +   3 people like this
Posted by Annette, a resident of College Terrace,
on Apr 25, 2018 at 1:45 pm

Annette is a registered user.

I understand the various determents to shopping in person, but the plusses outweigh them for me. When I shop in person I get to:

say hello to my favorite grocer, John, @ Mollie Stones;
chat in person (not with my digits) with creative people;
see faces and expressions;
see and touch what I am buying;
try things on.

In-person shopping builds community and supports small business. I'd like to see CC enthusiastically support that so we retain a little character.


 +   5 people like this
Posted by Wall Street did in retailers not the internet, a resident of Rex Manor,
on Apr 25, 2018 at 10:56 pm

You are leaving out a key point. Claire's , Toys R Us, and many other retailers are victims of Private Equity firms using leveraged buyouts to rape and pillage the companies.

The retailers that survived as a rule have avoided the Wall Street financial manipulations: Walmart, target, etc.

The internet is inconsequential by comparison. Toys R Us had a plan to create a play areas and destinations for parents to bring their kids to.... after the LBO - there was no money available to be innovative. It all had to go to the Wall Street Yachts.


 +   3 people like this
Posted by Retail Preservation, a resident of Duveneck/St. Francis,
on Apr 26, 2018 at 1:09 pm

I think this is a reason why we need to have the retail ordinance in Palo Alto but also why we should not attempt to expand retail. We should focus on preserving the core such as University, California Ave, El Camino and Stanford Shopping Center. However, even more important is the retail in my opinion is the neighborhood centers such as Midtown, Edgewood, etc... Without retail preservation and zoning, obviously the retail will be replaced in favor of something more profitable.


 +  Like this comment
Posted by Midtown, a resident of Midtown,
on Apr 26, 2018 at 2:23 pm

Midtown is certainly bustling. There are some spaces that are non-retail, but the majority of the retail as far as I can see is very busy. The new Wells Fargo and presumably Mikes Café when it reopens after its remodel and takeover of the extra space, will only add to the amount of patrons the area has.

It would be good to see some way of increasing the size and caliber of Safeway. Having more retail space with parking above or below would be a great addition.


 +   4 people like this
Posted by I shop online, a resident of Leland Manor/Garland Drive,
on Apr 27, 2018 at 8:50 am

as usual, Palo Alto is unfamiliar with the concept of the free market and out of step with the times. Mandating retail preservation (especially given Palo alto's anti-business stance and their resistance to chain stores) is recipe for disaster--I am sure Holman et al expect mom and pop stores to coming flocking to Palo alto and see their investments wiped out because it is Palo Alto. Meanwhile more and more people shop online--this is the 21st century, though I am sure we ill be hearing from people reminiscing about the wonder stores that were here 20-30 years ago.
And just because the CC pays lip service to retail preservation and mom and pop stores does not mean that they will not be put through a long, onerous and costly process before being allowed to open.
Remember the gourmet hot dog place on California Ave. The city delayed their opening for a long time and then they opened and closed in a matter of months. Another restaurant on Californai was repeatedly delayed by the bogus complaints of a neighborhood "watchdog" and had threatened to pull out


 +  Like this comment
Posted by Mark Michael, a resident of Community Center,
on Apr 27, 2018 at 8:54 am

This is more of a question than a comment. Retail land use takes different forms. For example, it might be a regional-serving destination or a local-serving area. Physical locations includes malls, strip malls, main streets, ground-floor, etc. On-line is ubiquitous and virtual. Access to physical retail locations may be dependent on traffic, parking, transit, cycling, electric scooters, and foot travel, etc. Particularly for local-serving retail, walkable neighborhoods may stimulate enhanced retail viability. This may factor in residential zoning and the balance of single to multi family housing inventory. Here's the question: ease of use and other virtues of online shopping pose a challenge to physical retail; whereas, the coagulation of mobility and frustrations of relying on the automobile paradigm; along with the housing affordability/inventory shortage; put a squeeze on store front retail usage. Are we at an inflection point where impending solutions to enhance mobility and housing options may revitalize retail if and to the extent the community embraces an evolution in the character of nearby neighborhoods?


 +  Like this comment
Posted by Allen Akin, a resident of Professorville,
on Apr 27, 2018 at 1:32 pm

Allen Akin is a registered user.

@Mark Michael: "Are we at an inflection point where impending solutions to enhance mobility and housing options may revitalize retail if and to the extent the community embraces an evolution in the character of nearby neighborhoods?"

Translation: If we build mass transit and eliminate the R1 neighborhoods, will retail revive?

Based on my last trip to Manhattan and Brooklyn, I'd guess the answer is "no". Systemic changes (like online shopping), high lease rates, and displacement of existing businesses by new development projects seem to be having exactly the same kind of effects there as they have here.

I suspect someone has more objective data on this, but I haven't seen it.


 +  Like this comment
Posted by Denis Bill, a resident of Stierlin Estates,
on Jul 20, 2018 at 2:52 am

There are some spaces that are non-retail, but the majority of the retail as far as I can see is very busy.
Link deleted


Sorry, but further commenting on this topic has been closed.

Let's Talk Internships
By John Raftrey and Lori McCormick | 0 comments | 712 views

 

Race is tonight!

On Friday, September 21, join us at the Palo Alto Baylands for a 5K walk, 5K run, 10K run, or—for the first time—half marathon! All proceeds benefit local nonprofits serving children and families.

Learn More