MARIN COUNTY
Best Buy & Trader Joe’s Expand Presence;
Vacancy Rates Remain Low
SONOMA COUNTY
Kohl’s and Lowe’s Highlight New Sonoma Inventory
MARIN
Retail Market Continues Strong Showing
The Marin County retail market has continued to show considerable strength in the past year. The county has consistently maintained a vacancy rate below 5 percent, and asking rents are now $4 to $5 per square foot on a triple net (3N) basis in certain well-located retail sites. New and in-fill properties are big news in Marin, where 85 percent of existing land is permanently barred from new development.
Central and Southern Marin
Central and Southern Marin retail locations have reported the highest asking lease rates in the county. Downtown Mill Valley has led the way with asking rents between $4.50 and $5 per square foot (3N), mostly for spaces less than 1,000 square feet. The recently renovated Strawberry Village has seen high levels of leasing activity, and new tenants include Woodland Market, Pet Annex, Nancy Koltes and Smith & Hawken. The previous 1,750-square-foot Smith & Hawken location at 35 Corte Madera Avenue in Mill Valley recently sold for $1.3 million ($750 per square foot), highlighting the demand for well-located properties among investors.
Corte Madera Town Center has also experienced high levels of retail activity in the past year. Marshall’s is set to vacate the center to make room for a Barnes & Noble bookstore. The closure of The Good Guys electronics store created an additional 30,000 square feet of vacancy at the Town Center. Plans are to split the space in half to accommodate a restaurant and additional retail space.
Smith Hawkin, Mill Valley
San Rafael
San Rafael has seen a couple of high-profile retailers prepare to enter the market. Best Buy has completed construction plans for its new 32,000-square-foot store at 632 Dubois Street. Current plans call for an opening by Thanksgiving weekend, 2006.
Also of note is the purchase of Yardbirds by Home Depot. The former Yardbirds location at 1801 Fourth Street will be closed for approximately six months for a building remodel and employee re-staffing before it will be re-opened by Home Depot.
The downtown San Rafael retail market, which mostly consists of shops ranging between 1,000 and 3,500 square feet, has continued to draw heavy interest from tenants looking for a neighborhood location with relatively high exposure. Asking rents range from $1.50 to $2.50 per square foot (3N).
Novato
No Marin city has experienced as much recent retail development as Novato. The new 15,000-square-foot Trader Joe’s and Starbucks recently opened on the corner of Olive Avenue and Redwood Boulevard as part of a mixed-use project that will eventually include up to 300 individual family residences.
The city has approved plans for a new Whole Foods to be built on the corner of Reichert and Grant avenues. The store will be approximately 35,000 square feet and will be built alongside 166 residential units with some designated as affordable housing.
The former Nave Lanes site, purchased in 2005 by Grosvenor Properties, has been cleared, and plans are being made to construct a 35,000-square-foot Safeway store as well as approximately 12,000 square feet of additional retail space. The most recent plan for this project has been scrapped by the developer, and new plans are currently being developed.
Other potential retail locations include a 1.5-acre site just south of Vintage Oaks Shopping Center at the Highway 37/101 interchange and 15 acres just north of the Marin Independent Journal building on Alameda Del Prado in Ignacio.
Summary
Interest rates, while climbing, are expected to remain relatively low throughout 2006. This should continue to drive retail property values upward as more local and national investors seek to acquire strong-performing Marin properties. Vacancy rates remain extremely low, and demand should continue to outweigh Marin’s limited supply.
SONOMA
Retail Business is Booming
The Sonoma retail market witnessed extraordinary activity in 2005 and stands poised to receive significant new inventory in 2006 and beyond. New big box stores as well as smaller strip centers are expected in 2006 and 2007. Vacancy rates countywide remain near 2 percent. Most new developments will arrive with at least some tenants already in place, keeping vacancy rates low. The new tax revenues created by retail sales will be welcome by many local governments.
Home Depot made a significant move when it acquired Petaluma-based Yardbirds and its 10 Bay Area stores. Three of these stores are in Sonoma County, and it remains to be seen how Home Depot plans to use these retail locations.
Theatre District, Petaluma
Petaluma
Petaluma continues to lead the way in Sonoma County retail development with several new projects recently completed or expected soon. The Theater District redevelopment by Basin Street has drawn heavy interest from tenants. Asking rents range between $2.25 and $2.75 per square foot on a triple-net basis (3N). New tenants include Tagliaferri’s Deli, Great Wraps, House Fortuna and Quiznos as well as the new upscale restaurant Graffiti. Existing neighborhood retail properties have felt the upward pressure on asking rents, and many have raised their own rental rates 10 to 15 percent since the Theater District redevelopment began.
Target still has plans to anchor a 300,000-square-foot shopping center on the site of Kenilworth Middle School. Additional tenants for this center include Cost Plus and Circuit City. Construction is due to begin in late 2006 or early 2007. The planned expansion of the Petaluma Outlet Mall has been shelved, due in part to the major flood damage sustained last winter.
Other new developments include the 16,000-square-foot Adobe Creek Center (with Starbucks and Verizon Wireless as anchor tenants) and the soon-to-be-built 26,000-square-foot Lakeville Plaza on the SE corner of Lakeville Highway and Casa Grande Road (available May 2007). Asking rents for these properties range from $2.75 to $3.50 per square foot (3N).
Rohnert Park/Cotati
The biggest retail story in the Rohnert Park/Cotati area is the recent opening of the 120,000-square-foot Lowe’s on Old Redwood Hwy. Other new developments include a 16,000-square-foot strip retail project at 6595 Commerce Blvd., and a 28,000-square-foot project at 6258 Commercial Blvd. Both projects have asking lease rates of $2.50 to $3 per square foot (3N).
Santa Rosa
The Santa Rosa retail market welcomed significant new inventory in 2005 and is set to receive more in 2006. Big box retailers continue to be active. The long-awaited 95,000-square-foot Kohl’s has opened on the corner of Hopper and Airway drives, and Wal-Mart has just received city approval to move into the former Home Base location on the southwest corner of Stony Point and Sebastopol roads.
Several new strip retail developments are also expected in 2006 and 2007. A 32,000-square-foot center, anchored by Starbucks and Taco Del Mar, is being constructed on the northeast corner of Stony Point and Sebastopol roads and should be ready for occupancy by November 2006. Additionally, Fountaingrove Village, a 30,000-square-foot mixed-use development under construction on the corner of Stagecoach Road and Fountaingrove Parkway, is due to be completed October 2006. Asking rents for these developments range between $2.75 and $3.50 per square foot (3N).
In downtown Santa Rosa, plans are moving forward on a mixed-use project on the corner of Third and D streets. This 11-story project will include 15,000 square feet of ground floor retail space, 183 residential condominiums and a four-story garage across the street. Completion is expected in May 2007. Current plans for the redevelopment of Railroad Square call for a food and wine center, a public market and an additional 10,000 to 20,000 square feet of retail space.
Summary
Sonoma County is one of the fastest growing retail markets in the Bay Area. More than 300,000 square feet of new retail inventory entered the county in 2005, and 2006 should top that number. Lease rates have climbed above $3 per square foot (3N) in several newer, well-located centers, and vacancy rates remain extremely low. High costs of entry have forced developers to seek increasingly high asking rents. This has raised concerns that local retailers will not be strong enough financially to compete with national tenants for prime locations. Tenant demand remains high, but it remains to be seen how the market responds to increasing development costs and subsequently higher lease rates.
