Developers and owners of Orange County’s retail centers are increasingly going small and thinking with their stomachs to attract customers.
Smaller-sized food vendors and restaurants have recently become the most in-demand source of tenants for retail centers across the county, replacing traditional big-box anchor tenants and department stores as the main draw.
New centers, including the 40,000-square-foot Anaheim Packing House in downtown Anaheim, have eschewed large tenants altogether, opting to focus on several dozen small vendors to fill their spaces (see related story, below). Other retail centers, such as South Coast Collection in Costa Mesa and the under-construction Pacific City shopping center in Huntington Beach, have set up dedicated areas to draw in food vendors and other small, boutique vendors not typically found at larger malls.
Even OC’s largest retail owner, Newport Beach-based Irvine Company, has gotten in on the act, tapping a new generation of hip food spots to reinvigorate parts of its neighborhood shopping centers and its two large local malls, the Irvine Spectrum and Fashion Island.
It’s a trend that’s expected to continue, according to Dan Sheridan, the former head of Irvine Co.’s retail division.
Dining “is becoming an integral part of the tenant mix, even the equivalent of another anchor,” Sheridan said in a recent opinion piece for the International Council of Shopping Centers’ Shopping Centers Today trade publication.
Council figures show that food service comprised about 10.7% of the leased space at larger national malls at the end of 2013, up from 9.4% at the end of 2011.
“Food has become an anchor, taking up about the same amount of space and possibly generating as many sales dollars as a department store,” said Sheridan, who oversaw the Irvine Co.’s 9 million or so square feet of retail space throughout California until June.
Developers are taking notice of that food-focused trend, based on the design of the newest batch of retail centers going up in Orange County.
Only two tenants have been announced at DJM Capital Partners Inc.’s 191,000-square-foot Pacific City shopping center being built on Pacific Coast Highway in Huntington Beach.
Fitness club operator Equinox, which will occupy a nearly 28,000-square-foot spot at the northern end of the center, was signed up last year. The second tenant, Bear Flag Fish Co., a seafood restaurant with two Newport Beach locations and a good deal of local buzz, was announced last month.
Bear Flag is among the small restaurants expected to fill Lot 579, a 35,825-square-foot mix of boutique eateries and vendors that will take up a portion of the mall’s second floor.
“Lot 579 is our anchor,” DJM President Lindsay Parton said this month when the San Jose-based developer announced Bear Flag as a tenant for the mall, which is scheduled to open next year.
DJM took over ownership of the long-planned project in late 2012. Its construction cost has been estimated to be $130 million.
The goal for Lot 579—named for the lifeguard towers across the street from the retail project—is to give “prospective tenants a whole new opportunity to showcase themselves in a smaller, more intimate setting, but where we will still be able to deliver a huge audience to their doors,” said Heather Hollister, DJM’s senior vice president of leasing.
Lot 579 could be the feature that delivers traffic to the mall’s more traditional shops, not vice versa.
That’s the pattern at Newport Beach-based Burnham USA’s South Coast Collection, which was previously known as the South Coast Home Furnishings Center. Burnham bought the center—which also goes by SoCo—in 2009 for $35 million. It undertook a major rebranding of the property, where occupancy had suffered as a result of the recession and housing downturn.
The center’s most radical change was the addition of the OC Mart Mix, a 23,000-square-foot area featuring more than 30 stores under one roof offering everything from coffee and gourmet spices to clothing and home decor.
The OC Mart was designed to emulate the Ferry Building in San Francisco, according to Scott Burnham, chief executive of the property’s owner. The mart and a cluster of unique restaurants next to it have, by most accounts, become the center’s main drawing card in the two years since it opened.
The 300,000-square-foot shopping center is now nearly full with a variety of retailers, restaurants, and design studios aimed at enthusiasts of high-end design, fashion and food.
Small Suits Sadeghi
Large, nationally known anchor tenants can provide cachet and a good source of rental income, but there are drawbacks for retailers, according to Shaheen Sadeghi, founder and chief executive of Costa Mesa-based LAB Holding LLC, developer of the Anaheim Packing House.
An anchor tenant’s personality and design tends to drive the personality of the retail center, not the other way around. And if a national chain with few ties to the community decides to retrench, it can quickly leave a large hole in a center that’s hard to replace, Sadeghi said.
There’s been more big-box space vacated in OC recently than leased, despite the generally improving local economy and retail real estate market.
Midyear, the county had about 2 million square feet of empty big-box space—retail space 20,000 square feet or larger and designed for a single tenant.
That’s up nearly 400,000 square feet since the end of last year, according to data from the Newport Beach office of CBRE Group Inc.
Ten big-box spaces in OC have been leased over the past six months, and 17 have gone empty, according to CBRE data.
Instead of one large anchor tenant, “I’d rather have 28 small businesses as our anchor,” knowing each of their operators is personally invested in seeing their operations succeed, Sadeghi told the Business Journal this month.
Vendors at the Packing House tend to run 1,000 square feet or less, smaller on average than those at Sadeghi’s Lab and Camp “anti-mall” retail centers in Costa Mesa, whose largest tenant is a 12,000-square-foot Urban Outfitters.
Packing House tenants include comfort food restaurant The Kroft, popsicle maker Pop Bar, and waffle sandwich restaurant Iron Press, which also has a location at SOCO.
It can cost upward of $500,000 for the stores at the Packing House to get their operations up and running, according to Sadeghi, who spent close to $9 million to renovate the 40,000-square-foot building.
The Irvine Co. is in the process of adding a Packing House’s worth of food vendors to each of its two largest local malls.
It’s added more than 40,000 square feet of food options at Fashion Island since the start of 2013, while food-related tenants at the Spectrum top 13% of the 1.2-million-square-foot center’s leasable space, up from about 10% at the start of 2013.
The new food options have helped the centers remain relevant to Generation Y shoppers and helped Irvine Co. attract new retailers, according to data from the company’s retail division.
Large anchors still play a role in the company’s growth plans but only in the right circumstances.
Last month, Irvine Co. said it landed grocery chain Whole Foods Market to anchor a new shopping center in the Irvine Spectrum next to the Los Olivos apartment complex.
The 40,000-square-foot grocery store is the first tenant announced for Irvine Co.’s Los Olivos Marketplace, a new retail center that will go up just off the San Diego (405) Freeway at Irvine Center Drive.
Los Olivos Marketplace will be the first grocery-anchored shopping center opened on Irvine Co. land in seven years, according to Fred Collings, senior vice president of leasing for the Newport Beach-based landlord’s retail properties division.
The grocer’s reputation with health-food and organic-food shoppers should help the center draw shoppers from across the area, not just local residents, Collings said.
Construction is about to begin on the 120,000-square-foot center, which is scheduled to open by early 2016.
It’ll be Whole Foods Market’s second location on the Irvine Ranch, joining a 33,000-square-foot store at Fashion Island that opened in 2012.