Empty Stores Attest to Retail Slump : Economy: Area’s vacancy rate has doubled in last two to three years, experts say. Small shopping centers are hit the hardest.

Signs of a slump in the retail real estate market are everywhere.

A Hermosa Beach mall is forced to rent restaurant space to a health club. Tenants at a San Pedro shopping center are hard-pressed to pay the rent. “For lease” signs are popping up in vacant storefronts throughout the South Bay.

Even Redondo Beach’s Galleria at South Bay, with the mighty Nordstrom and May Co. as anchor stores, is reporting a slight increase in financially troubled shops.

“There is a slowdown in the market,” said David Cole of Centers Business Management, a real estate firm that specializes in small shopping centers. “We have vacancies in shopping centers that haven’t seen vacancies in five years.”

Experts estimate that the South Bay retail vacancy rate has doubled in the last two to three years and is now 6% or higher in some areas.

That is significantly less dramatic than the office vacancy rate in the South Bay, which hovered near 20% for the first quarter of 1991. But brokers and landlords say the vacant stores are a barometer of the recession’s effect on retail sales.

“We’ve had to work with a few tenants just to keep them alive,” said Ted Rivenbark, property manager for the 22-store Pacific View Shopping Center near Western Avenue and 25th Street in San Pedro. A few tenants were allowed to pay rent 20 to 30 days late. Two others arranged to spread payments over several months.

The Hermosa Beach Pavilion on Pacific Coast Highway contains prime restaurant space facing the ocean, but “for the life of me, I can’t lease it to a restaurant,” said property manager Dee Harris. Instead, she plans to rent the space to a health club.

No exact figures are available for the retail vacancy rate in the South Bay. And although experts’ estimates differ, several agree the rate has doubled since 1988 or 1989.

The frequency of vacancies varies from city to city and among malls within those cities. The larger, best-established centers, such as the Galleria and the Del Amo Fashion Center in Torrance, are suffering the least, brokers said.

Del Amo reports that its vacancy rate is about 1%, the same as two years ago. And unlike other malls, it has a waiting list. The mall’s biggest problem is finding enough space to accommodate tenants who want larger stores, Del Amo officials said.

Torrance is “a very, very secure area,” according to Ted Lawson, senior vice president at the South Bay office of CB Commercial Real Estate Group, a real estate and property management firm.

Still, even Torrance has felt the effects of the recession. Lawson recently studied the availability of retail space in Torrance and found it has increased from about 0.75% in 1989 to 1.6% six months ago.

Unanchored strips, small shopping centers without an anchor store to lure customers, are among the hardest hit, said Lawson and Bill Bauman, a broker with Grubb & Ellis, a real estate firm.

More retail space in small shopping centers may have been built in the South Bay than the area can support, brokers say. Design flaws also play a role, and lean times can exacerbate problems, such as not being located on a street corner or failing to provide high visibility for its stores, brokers said.

In smaller malls, leasing has slowed significantly among “mom-and-pop” tenants, landlords said.

“You don’t have people taking risks as much as they used to and opening up small businesses,” Cole said.

He recalled visiting a dry-cleaning tenant whose rent check was 10 days late. “I walked into his store, and the racks were 50% filled,” Cole said. “He said to me, ‘In a recession, people aren’t having their clothes cleaned as much.’ ”

Frederick Llano, a Lomita-based general contractor who owns three small South Bay shopping centers, said he was forced to start eviction proceedings against six tenants in the last six months for abandoning their leases or not paying rent.

Bauman said most retail vacancies resulted when smaller tenants went out of business or when national or regional retailers, such as Buffums, encountered financial problems, resulting in the closing of stores. Buffums closed its two South Bay stores in May along with 14 others in Southern California.

Retail rental rates in some areas have dropped as much as 15% to 30%, Bauman said. One Hawthorne Boulevard building recently rented for $1.85 a square foot, compared to the $2.50 it might have commanded two years ago, he said.

“You can cite deals up and down the street,” Bauman said.

In addition to lowering rental rates, some landlords are extending special incentives to prospective tenants.

Hawthorne Plaza, which has a 9% vacancy rate, has been offering rental credits and even cash to help with construction costs.

Rivenbark, who manages the leases on the San Pedro center, is offering two months’ free rent.

And Cole said he is making deals he would not have considered in the past. “I’m giving tenants six months to nine months free rent on some properties,” he said.

At the newly renovated Torrance Promenade, formerly Old Towne Mall, 10 to 12 smaller stores are still available, but all six anchor stores have been leased, said Martin Moskowitz, leasing director for the owner, Burton Property Trust.

Leasing is proceeding at a somewhat slower pace at the Terraces, a three-level shopping center on Western Avenue in Rancho Palos Verdes that Moskowitz is in charge of leasing.

“Most people forget that real estate is cyclical,” Moskowitz said. “We were riding one of the longest periods of growth that anyone can remember. (But) right now, there are fewer tenants, and more space. . . .

“We just forgot, because we had so many years of a boom.”

Times Staff Writer Kim Kowsky contributed to this story.

HARRY CHASE / Los Angeles Times