Big-Box Boom : Superstores Sprout as O.C. Strip Malls Wither
Drive down any crowded avenue in Orange County and you’ll see “for lease” signs posted at strip mall after strip mall.
The vacancies are the legacy of a construction boom during the go-go 1980s that left the county awash in small retail storefronts, many of which now sit vacant.
But the view is decidedly different from the county’s freeways. There, motorists see signs for Best Buy, Barnes & Noble and other retail chains that are muscling their way into town with giant stores built at massive new shopping centers with easy freeway access.
During the first three quarters of the year, more than 1 million square feet of new retail space opened here, and an equal amount might be ready for business before year’s end.
Why so much construction in a county that’s seemingly awash in retail properties?
It’s all tied into the old real estate axiom: location, location, location. And, according to the experts, much of Southern California’s excess retail space is simply in the wrong place.
Current construction is driven by space-hungry national chains like Bed, Bath & Beyond, Old Navy and Oshman’s Sporting Goods Inc. Retailers call them “big boxes” because a single store easily chews up more that 50,000 square feet. The big stores typically are found in clusters, leading to another bit of real estate industry jargon: the power center.
The trend toward huge stores doesn’t bode well for owners of smaller shop spaces built largely during the late 1980s by starry-eyed developers. Then, the smart money was betting on an endless supply of retailers that would snap up small, 1,000-square-foot shops to sell dresses, greeting cards, picture frames and the like.
But in the harsher light of the mid-1990s, it’s obvious that many of those projects were ill-conceived. Newport Beach-based CB Commercial Real Estate Group estimates that the vacancy rate at strip centers and free-standing retail shops is hovering at about 20%.
Some neighborhoods have been especially overbuilt. CB Commercial Vice President Mike Jensen knows of eight small centers in a 4-mile radius in North County that look like ghost towns.
Changing consumer shopping patterns doesn’t bode well for smaller strip centers. That’s because retailers and grocery store operators are offering “one-stop shopping” by sandwiching everything from a bank office to a fast-food restaurant inside their stores.
“In the old days, there would have been a heck of a lot more individual tenants filling the space,” said Harry Newman, a Long Beach developer who’s been building shopping centers in Southern California for more than three decades.
“As a result of those big-box operators moving in, the shop space business has largely dried up and blown away,” said another leasing agent. “You’re seeing very little shop space being built today relative to what was done just a few years back.”
Most of the huge, new stores are being built at new shopping centers that, because they typically have freeway frontage, offer great visibility.
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There are exceptions. Barnes & Noble rehabilitated an old furniture store on the outskirts of Huntington Center Mall, Wal-Mart is knocking down an old department store at the Mall of Orange and Oshman’s Sporting Goods gutted mall space to build its superstores in shopping malls in West Covina and San Diego.
But most of the new retail stores are popping up at new shopping centers like Metro Pointe at South Coast, a 385,000-square-foot center in the shadow of South Coast Plaza. When completed this year, the center will house a 12-screen Edwards Theatre cineplex and several major chains, including Barnes & Noble, Best Buy and Old Navy.
Metro Pointe is one of five centers--with a total of 1 million square feet of leasable space--that opened for business during the first three quarters. Construction crews also are at work on six more centers with a total of 1.2 million square feet of leasable space.
CB Commercial Director of Research Sheri Cameron reports that as much as 3.8 million square feet of additional retail space is in the planning pipeline for 1997 and beyond.
And, not surprisingly, said Greg Mickelson, a broker with Koll Retail Group in Newport Beach, much of the development is taking place in younger communities like Aliso Viejo, Foothill Ranch and Rancho Santa Margarita, where big-box retailers are jockeying for position.
The flip side, Mickelson said, is that operators of older shopping malls in the rest of the county “are trying to figure out how they can be reconfigured to meet today’s retail demands.”
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Southern California’s construction boomlet is part of a national trend that developed in the East and Midwest before reaching California.
During 1995, new contracts for construction or renovation of stores and shopping centers nationwide rose by 5% to 265 million square feet, according to Robert Murray, vice president of Boston-based F.W. Dodge, which tracks retail construction.
“That was very close to the 272-million peak reached during the mid-1980s,” Murray said. “And for [1996], we’re estimating contracts will be let for 230 million square feet, which is a 13% decline. But it’s still the third-highest level this decade.”
California came relatively late to the retail construction boom because of the state’s tough economic times during the early 1990s.
“California’s cycle has been different from the rest of the country,” said Steve Rath, vice president of development for Houston-based Oshman’s Sporting Goods Inc., which will open three huge stores in Southern California during the next year.
“But while the timing is different in California, it’s the same redeployment of space that’s been happening around the country.”
Developers say the ongoing boom won’t match the heady levels of the late 1980s, when as much as 3 million square feet of space was added each year. And they maintain that the current boom won’t result in more vacancy signs because the new centers are generally pre-leased by the major chains.
That’s a decided contrast to the late 1980s, when developers tossed up buildings without leases in hand.
“During the late 1980s, a lot of foolish money . . . was chasing real estate,” said Robert Smith, a senior vice president with CB Commercial who tracks Los Angeles County retail trends. “And a lot more foolish money was chasing retail concepts that weren’t viable in the long-term.”
And, as consumers flock to the bigger stores, changing shopping patterns underscore the fact that many of Orange County’s vacant storefronts are “white elephants,” Crowley said.
“The big question is: What we’re going to do with the leftovers? . . . Like the [aging] community centers with a department store at one end, a Mervyns at the other, and lots of small shops in between,” Crowley said. “They’re really getting hit hard.”
Mickelson notes that “much of the older retail space is now obsolete or about to become obsolete, especially the smaller strip centers without major stores that were built in the 1980s. They’re still sitting there, 50% leased, still getting counted in the county’s total retail space.”
Jensen offers another measure of how retail’s star has faded: Developers who knocked down gas stations during the 1980s to build retail strip centers are now starting to knock them down to make way for gas stations.
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It’s not good news for existing retail developments, but when big box operators come to town, they usually stick together. And they generally don’t want to associate too closely with traditional malls.
“They want great visibility from the freeway and they want to go where all the other big boxes are going,” Crowley said. “They want to get as close to the other national chains as they can get.”
That’s why Best Buy, Barnes & Noble and Old Navy are side by side at Metro Pointe, and the expansion of Tustin Marketplace will add big chains like Babys R Us, Bed, Bath & Beyond and Borders Books.
Smith has watched more than 1.5 million square feet of retail space pop up within a stone’s throw of Puente Hills Mall in the city of Industry. The common denominator: Most of the new arrivals are big-box operators who’ve taken high-visibility locations outside of the traditional mall.
Retailers, including Oshman’s, say they’re building bigger stores because that’s what customers want.
The Houston-based chain will open a 55,000-square-foot store in the newly expanded La Habra Marketplace on Saturday, and is building huge stores in West Covina and Irvine.
“Increasingly, the preferred shopping environment for consumers is to be able to see and to shop a very broad assortment of goods,” said Oshman’s Vice President Steve Rath.
The sporting goods chain used to build stores that covered about 10,000 square feet, but its new stores in Southern California will be 50,000 square feet or larger.
The Oshman’s SuperSports USA store opening Saturday in La Habra stocks a wide selection of ski and weight-lifting equipment, and shoes and paraphernalia for just about every other sport. But it also has an indoor basketball court, a golf simulation booth and a batting cage where customers can check out the differences in aluminum, wood and ceramic bats.
The “play-before-you-pay” concept is designed to get consumers into a buying frame of mind by making the shopping experience more entertaining.
“We see guys on the basketball court who aren’t testing anything other than their own skills,” Rath said. “But maybe they’re just there to burn off some extra time, or to get a bit of exercise.”
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Real estate always has been a cyclical industry, and experts are already looking to the inevitable day when the local market is saturated with big boxes.
Best Buy, which opened its first store in California in November 1994 is a good example. In less than two years, the chain has added 20 more locations in California. At that pace, it won’t take long for the company to saturate the state.
“You can only squeeze so many of these big boxes in,” said Del Mar-based real estate consultant Sanford Goodkin. “You make them bigger and bigger to dominate the market, but as penetration gets better, you reach a point of diminishing returns.”
Goodkin also wonders how big a store can get before “more selection turns into total confusion among shoppers who can’t find their way around a store.”
And, Crowley says, the real estate industry experts will face a new challenge when the ranks of big-box operators are trimmed through an inevitable wave of industry consolidations: “That’s going to create duplications and then we’ll have to figure out what to do with all these empty big boxes.”
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Retail Construction Boom
So far this year, five major retail centers totaling just over 1 million square feet have been built in Orange County. At least seven projects totaling 1.4 million square feet are underway or in the planning stages. Retail shopping center construction:
Finished or Substantially Finished:
1. South Coast MarketplaceSquare feet: 100,000
2. Park Place Shopping Center
Square feet: 155,000
3. Rancho Santa Margarita Town Center
Square feet: 300,000
4. Metro Pointe at South Coast Plaza
Square feet: 385,000
5. Village Center at Rose
Square feet: 108,000
Under Construction or in the Works:
* Tustin Marketplace Phase II
Location: Tustin
Square feet: 437,500
* Spectrum 5
Location: Irvine
Square feet: 150,000
* La Habra Marketplace Phase II
Location: La Habra
Square feet: 200,000
* Pacific Park Center
Location: Aliso Viejo
Square feet: 150,000
* Mission Foothills Shopping Center
Location: Foothill Ranch
Square feet: 150,000
* Anaheim Plaza Phase II
Location: Anaheim
Square feet: 83,861
Completion date: 1997
* Irvine Entertainment Center Phase II
Location: Irvine
Square feet: 250,000Completion date: 1997
Source: CB Commercial Real Estate Group; Researched by JANICE L. JONES/Los Angeles Times
Power Centers
Specialty centers had the highest vacancy rate among all Orange County retail centers during the third quarter of 1996. Vacancy rates by type of space, third quarter, excluding strip centers, regional malls and free-standing retail buildings:
Specialty centers: 13.06%
Neighborhood centers: 10.08
Community centers: 8.66
Power centers: 6.11
Retail total: 9.43%
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Retail Center Definitions
Neighborhood: Convenience goods and personal services for daily life, usually anchored by supermarket; 30,000-100,000 square feet
Community: Wider range of stores than neighborhood center; usually anchored by a small department store, variety or discount department store plus supermarket; 100,000-450,000 square feet
Power: Anchored by market dominator (example: Toys R Us) and a discount department store or warehouse club; at least 350,000 square feet
Specialty: Has a dominant marketing theme such as home improvement, entertainment, factory outlet, etc.
Source: CB Commercial Real Estate Group
