Thanks to more targeted retail development, shopping in the North Bay is getting better. As the population gets richer and older, there’s more demand for higher-end stores and variety when it comes to shopping. Suddenly, the North Bay retail market is broadening considerably.
National chains are certainly interested. Retailers like Best Buy, Michaels, Whole Foods, Pier 1 Imports, Wal-Mart, Target and Lowe’s Home Improvement are all building new stores here. High-end retailers are slowly but surely recognizing the inherent possibility of moving beyond Marin and into Sonoma and Napa counties as well. Art galleries, boutiques and better-quality restaurants are multiplying in downtown areas.
Developers are trying to make shopping more self-contained so people won’t be inclined to spend their money elsewhere. As land continues to dwindle, there is more redevelopment of existing locations, making what was old new again. By revitalizing the retail landscape, the North Bay is becoming increasingly sophisticated—a trend that’s likely to continue.
The overall retail market
On the whole, 2005 was a strong year for retail development. In Petaluma, for example, a rash of new development is being created to catch up with demand. In other areas, like Napa, new businesses are coming in to spiff up existing spaces. Vacancies hover around 5 percent, and rents range between $1.75 to $4.50 per square foot.
“For the most part, 2005 was a good year,” says Ben Stone, executive director of the Sonoma County Economic Development Board. “We benefited from low interest rates and a growing income in the population in general. We had a favorable business climate and a healthy economy.”
Then in August, hurricanes hit the country, and gas prices climbed. This drove up prices across the board and led to a dip in retail shopping. Prices were also impacted by the falling U.S. dollar, which made import goods more expensive. In October, retail confidence dropped to 5.58 on a 10-point scale. Consumer confidence also dropped significantly during this time.
“I think August was one of the worst months nationwide for retail,” says Brad Baker, President and CEO of Codding Enterprises. “Up until that point, it was going along really well. It’s too early to tell what the final impact will be on development.”
Despite changes in the day-to-day economy, retail is an important local industry. In Sonoma County, for example, retail is the third largest employer after government and manufacturing. Retail also has one of the lowest average salary earnings, however, at $30,102 per year.
It’s also an important source of tax revenue. In this era of bleeding budgets, some cities have dramatically increased retail development to help make ends meet. Unlike many types of development, retail projects generally have fewer hurdles when it comes to approval from local governmental bodies, according to Baker. “The cities want retail,” he says. “They want the sales tax dollars. The supply of retail has increased over the last 10 to 15 years partly because of this.”
Stopping the retail leak
Some analysts believe Sonoma County has an imbalance in land use, with too much retail and not enough industrial and office use. Still, other evidence suggests that many areas are missing out on certain important types of retail. As it turns out, in much of the North Bay, residents leave to go shopping in other areas.
Petaluma’s 2003 Leakage and Sustainable Retail Strategy Study put numbers to this issue. The study asked 400 Petaluma residents where they do their shopping. It found that less than half of those surveyed considered Petaluma their primary shopping destination, which added up to an estimated $250 million in annual retail sales leakage.
While many residents shopped locally for convenience items like groceries or cleaning supplies, when it came to other things they went elsewhere. Between three-quarters to all residents left Petaluma for movies or to buy electronics, furniture or appliances. More than half went to other areas to shop for clothing, footwear, books, music, sporting goods and to eat at national restaurants.
“The numbers were staggering,” says Scott Stranzl, vice president of Basin Street Properties, which is heading the downtown Theatre District project. “If someone wanted to buy linens or a piece of electronic equipment, Petaluma just didn’t offer them many options.”
Other areas of the North Bay have leakage as well. Napa, for example, has heavy retail leakage. People leave for most types of comparison shopping. “Most people who live here recognize that you can get most of what you need in Napa,” says Jennifer La Liberté, project coordinator for the Economic Development Department for the City of Napa. “But if they want to shop for multiple products in a one-stop type environment, they’ll go to Corte Madera or the Fairfield shopping mall.”
Petaluma’s retail boom
Since the study, Petaluma has been busily filling the gaps in retail with several new shopping centers. Some of the major projects nearing completion in 2006 include the Theatre District, Redwood Gateway Center, Deer Creek Plaza, Adobe Creek Center and East Washington Place.
The Theatre District is a six-block, $100 million mixed-use project that’s being developed by Basin Street Properties. It’s anchored with a 12-screen movie theater and has businesses like Peet’s Coffee, Tagliaferri Deli, Great Wraps and Petaluma Wireless. “Of the space available today, we’re 95 percent leased,” says Stranzl. “We’re expecting to be finished by the end of 2006.”
The Redwood Gateway Center, owned by the Robertson Properties Group, opened a Kohl’s Department Store, Pier 1 and a Michaels in 2005. The 16-acre, 166,000-square-foot site on the corner of North McDowell Boulevard and Old Redwood Highway has room for several other stores. This site should be completed some time this year.
Deer Creek Plaza, otherwise known as the DSL site (named after owners Downey Savings and Loan), is located on McDowell across from Petaluma Valley Hospital. At press time, Lowes, TJ Maxx and Bed Bath and Beyond were planned for this 36-acre, 323,000-square-foot site.
Adobe Creek Center is a 17,000-square-foot site by RNM Properties. It has already opened a Starbucks, a Mr. Pickle sandwich shop and has signed a lease with a dry cleaner. As of this writing, it’s also negotiating to add a Chinese restaurant, a taqueria and a cell phone dealer.
“The site is servicing specific customers that work in the business parks and live in the immediate neighborhood,” says John Schaefer, vice president of Terranomics Retail Services, a division of NAIBT Commercial Real Estate, which is brokering the center. “Leasing of the project will be finalized this year.”
East Washington Place, developed by Regency Centers, is known for being on the former site of Kenilworth Junior High, one of the best sites identified in the Leakage Study for retail development. The mixed-use project includes 333,000 square feet of retail on a 40.5-acre parcel. Developers plan to break ground this year.
The upscale leak
In the cases of both Sonoma and Napa counties, the largest retail leakage is in high-end shopping. With median incomes of around $61,000 for families in Sonoma and Napa, it’s no surprise residents would want to peruse more expensive items. “People are leaving the area for high-end purchases. In other words, to shop at places like Nordstrom,” says Baker. “The higher end of the market has some leakage south of here, so there’s some opportunity to capture those retail dollars.”
Codding Enterprises is hoping to revamp Coddingtown Mall this year, a project that may attract better stores and, maybe, a new anchor store at the end of the mall. It’s one of several projects that may consider targeting the higher-end market. In the last few years, Santa Rosa’s Montgomery Village has had some upscale retailers come in, which has attracted more customers to the shopping center. A similar situation has occurred in Windsor and Healdsburg. New developments in their downtown areas have encouraged higher-quality restaurants and stores, which in turn has brought in more shoppers.
Petaluma’s new downtown has not brought in much high-end shopping yet, but it is attracting a higher class of restaurants, which is reinvigorating Petaluma’s nightlife. “Quite frankly, if you look at the number and quality of the restaurants coming in, you could say that Petaluma is building a culinary center,” says Stranzl. “The other day, I ran into someone who was going to Petaluma for the weekend, just to check it out. I had never heard of that before. It’s becoming a destination.”
Retail in Marin
Even though more high-end retail is coming into Sonoma County, residents still go to Marin for shopping, especially to the Corte Madera Town Center. Because it has more choices overall, Marin has less leakage than Napa and Sonoma counties. “It is its own market,” says Carlos Rivas, a principal at Orion Partners Ltd. “I don’t know how you would classify leakage in Marin because the communities are so separate.”
Since 85 percent of Marin’s land is permanently barred from new development, the projects that do go in are often remodels of existing buildings. “For example, the new Best Buy building that’s going into downtown San Rafael was a big metal building beforehand,” says Rivas.
The Marin retail market has low vacancies even though rent ranges between $2.50 to $4 per square foot and is still rising. In fact, at the new Strawberry Village Shopping Center in Mill Valley, which sold for a record $70 million in 2005, rent is going out at $4.50 per square foot. The 150,000-square-foot development will have a remodeled Safeway as its major anchor.
Novato is also getting new development. The city’s 2005-2006 budget saw a $3 million shortfall, making it necessary to create a new revenue source, such as sales tax. In the last seven years, only 20,000 square feet of retail space has been added to Novato, according to the town’s Economic Development Commission.
The biggest development is the Village at Novato. The Prado Group in San Francisco proposed this mixed-use project at Redwood Drive and Olivet Avenue. Along with approximately 300 new residential units, it could have as much as 80,000 square feet of retail space. And after a letter-writing campaign by passionate Novato residents, Whole Foods is putting in a 45,000-square-foot store at the east end of Grant Avenue.
In addition, the 8.5-acre site on Nave Lane in Ignacio was recently sold to Grosvenor Properties for $18 million. It will most likely have retail, including another grocery store, possibly a Trader Joe’s.
Revitalizing downtown Napa
Novato’s problem is a common one among North Bay cities: As land shrinks, so does development and, therefore, a major source of new funding. In Napa, for example, sales tax is the second largest source of revenue, right after property tax. As with Marin, Napa has a firm rural limit line to protect agriculture. Even when new stores want to come into town, there often isn’t room for them.
“Costco has, in the past, expressed interest in this market, but it needs 10 to 20 acres of land,” says La Liberté. “There’s a market for a Costco here, at least according to their analysis, but whether this market can absorb another big box or not is up in the air. Unless it’s a redevelopment, it’s unlikely there’s room.”
Still, new businesses are entering the Napa market through redevelopment of existing spaces. Recently, the town has gotten a second Target, a Cost Plus, a Trader Joe’s and a Talbots, among others. “Other stores are rumored to be looking,” says La Liberté. “And national retail developers are interested in purchasing a shopping center, which would bring in a new tenant mix and other types of retail stores.”
However, downtown Napa is just beginning to recover from a few difficult years when business struggled from a combination of high rent, low traffic and a difficult parking situation. Of the 482,000 square feet of retail space downtown, 50,000 was vacant, leading to a 10+ percent vacancy rate, according to the Napa Valley Register. But as of November 2005, La Liberté estimated downtown vacancy rates were close to zero, except for some vacant buildings where development is planned.
“There’s been a lot of investment lately, and that’s a sort of silver lining,” she says.
It is expected that Napa’s downtown revitalization will quell some of the retail leakage and gain more business from the many tourists coming through the valley. A $160 million flood-control effort is leading to better infrastructure. Two new hotels are planned for the downtown area. A new riverfront promenade near the restored 1914 Napa Valley Opera House now has art studios, wine bars and eateries. And Coldwell Banker Commercial has proposed the 30-acre Gasser Master Plan project along Soscol Avenue, which will include a movie theater, retail, office and residential space.
Another project in downtown Napa that will likely break ground this spring is the 67,000-square-foot Napa Square, which is owned by CDI. Managing member Harry Price says approximately 25,000 square feet may be devoted to retail. In addition, Napa Mill LLC, of which Price is the managing member, has recently completed and leased out Napa Mill, a 30,000-square-foot project of retail and restaurants downtown.
In the five years it has taken to build the project, business has slowly improved, Price believes. “We’re building business every year,” he says. “Retail development is fair in downtown Napa, but it will be a lot better when the bridge on First Street is put through and if First Street between Main and Jefferson streets is turned into a two-way street.”
Big-box retail
For the most part, retail development is split in the North Bay. On the one hand, there are smart-growth projects like in Windsor or Petaluma—mixed-use developments that put living, working and shopping all within walking distance from each other. On the other hand, there are big-box stores that come in large clusters with smaller chain stores filling in the gaps, like the Redwood Gateway Project in Petaluma. These stores, which often sprout up every few miles from each other, are usually national chains.
While Napa and Marin counties have less room for big-box stores, in Sonoma County big-box development shows little sign of stopping. Everything from a Wal-Mart to Lowe’s to Kohl’s has recently come into the market. And while some feel that big-box retail has saturated Sonoma County, there’s no denying how successful it can be. “Big box is doing very well in the Santa Rosa marketplace,” says Rivas. “They’re all ‘A’ stores: Target enlarged its store; Best Buy is here; Costco is one of the major stores. Santa Rosa is very sought after in this type of retail.”
Unlike other kinds of retail, big box is often controversial. Many feel it causes sprawl and traffic problems as well as homogenizes the community. The Lowe’s that is nearly completed in Cotati was the center of a bitter battle among community factions, leading to the discovery of the California tiger salamander issue.
Some big-box stores are more likely to attract protests than others. American Canyon’s Napa Junction project, headed by Lake Street Ventures, is anchored by a 176,000-square-foot Wal-Mart shopping center. Though the 40-acre site also contains 200 apartments, restaurants, a hotel and other retail space, the Wal-Mart caused the local uproar.
Two citizen groups sued the City of American Canyon and Wal-Mart, saying the city failed to require an environmental impact report and that the store violated zoning. A contentious legal battle followed, with Wal-Mart eventually prevailing last July. But as late as October, people were still protesting to keep the big-box giant from coming in. In Santa Rosa, community groups also protested the 100,000-square-foot Wal-Mart on Stony Point when it was first proposed.
Despite the conflict, when a city council needs funds, the path can be smoothed for big box. In just a few years, Rohnert Park has sold most of its available land off to take care of budget problems and boost sales tax. During that time, a variety of new projects has come into the town, including several new strip malls, mid-sized stores and several big-box stores like Office Depot and Costco. At this point, Rohnert Park is rapidly becoming completely built out.
Once a national chain comes into an area, it often opens several stores to beat out the competition. For example, Rohnert Park has five Starbucks locations and no Peet’s Coffee. There are four Applebee’s restaurants in the county but no TGI Friday’s (although there is one Chili’s). “They have to out-position the competition,” says Rivas. “In some instances, rather than have a competitor come in, they go ahead and open another store, and then take any losses and spread them out over the entire system.”
Sometimes, though, a chain can over-expose itself. Although the Petaluma leakage study revealed how much residents wanted a movie theater, a local theater had closed down only five years before. At that time, Petaluma Theaters had just opened a larger, better one only a few miles away—Pacific Rohnert Park All-Stadium 16.
“By buying the movie theater in Rohnert Park, they essentially cannibalized themselves,” says Stranzl. “The new theater is different because it’s in the heart of downtown, the only area where a theater can be built in Petaluma now. Everyone is excited about it.”
The other difference between this movie theater and the old one is that the new one was built with extra attention to the demands of the community. By listening to what people want and giving it to them, developers are more likely to have success in the long run.
If you build it, they will stay
As developers get savvier at meeting these desires, residents should begin seeing, in 2006, the kind of shopping they’ve been leaving the area to find. “We need products for the increasing number of tourists we’re having, for the increasing diversity of the people who live here and for the increasing maturity and affluence of our population,” says Stone. “As developers meet these needs, there’s a good chance it will pay off for them.”
