5 Trends Driving East Bay Retail in 2016

With the East Bay, particularly Oakland, gaining so much attention in the current cycle, there's a lot of speculation on what the coming year will hold. Bisnow caught up with Browman Development Co leasing manager Scott Bohrer, who recently moderated a ULI panel in Oakland on the East Bay Retail Renaissance.

Drawing on insight from the panel, here are Scott's top 5 trends that will influence East Bay retail in 2016. That's Scott, second from right. With him are panelists Michael Keener, Barry Bourbon, Garrick Brown and Patrick McGaughey.

1) Tenant investment focusing on core markets

Retailers are drawn to the East Bay by the high levels of education, strong base of professional jobs and high average household incomes—critical metrics when considering opening a new store. The high value of land in the Bay Area makes new retail projects tough to pencil, creating constraints on new supply that means existing shopping centers will continue to be a major target for investors and value-add developers. Paragon Commercial (Patrick McGaughey just opened the firm's Northern California office) is partnering with Canyon Capital to go after these types of assets.

Browman Development is redeveloping the McClellan Square shopping center near the Apple campus (anchored by a CVS and a 99 Ranch Market, shown above); available spaces have gone fast, though Scott tells us he's working on finding the right tenants for a 2,500 SF end cap and a 10k SF junior anchor space.

2) Vacancy at record lows, rents at record highs

Those same supply constraints and low vacancy in successful retail locations are driving rents throughout the Bay Area to record highs (as high as $70/SF in new shopping center developments, such as the new Whole Foods- and Nordstrom Rack-anchored Persimmon Place in Dublin, above).

The rents help justify new construction or major renovation of older shopping centers, but there is a question whether retail in the Bay Area is becoming somewhat overheated and whether tenant's sales will justify the large rents. This means some caution will need to be taken by developers in underwriting how much tenants will be able to pay if projects are one or two years out from delivering.

3) Restaurants lead, but over-saturation concerns loom

Historically, restaurants have made up one-third of all retail growth, but they now make up about half of all leasing activity. For new projects, such as Terramar's The Orchards in Walnut Creek (above), food businesses make up a major part of the overall tenant mix and spaces can expect multiple offers from similar food businesses prior to a lease being signed.

Developers will need to become more discerning on selecting the right tenants for their projects in 2016 as overcrowding in the fast-casual food segments may lead to clear winners and losers, especially if there is a slowdown in the economy. For example, Habit Burger and Five Guys are duking it out with regional operators such as S.F.-based Roam Burger (which has a location in the Lafayette community), according to Cushman & Wakefield's Garrick Brown.

4) Retailers looking to drive traffic through experience

Retailers continue to focus on ways to utilize their brick-and-mortar locations to create experiences for their customers; this can mean creating a story behind their food product or adding food and beverage service in traditional retail stores to help customers connect with the brand. TOMS Shoes has added a coffee bar to some of its stores, including the flagship in Venice, above.

Scott tells us Browman Development is finding opportunities to help tenants create an experience for their customers, whether by using outdoor patio areas and public art or considering temporary pop-up retailer kiosks with products and services customers can't get elsewhere. He says Browman Development is closing on a property in downtown Concord that will allow those opportunities near existing shopping and dining as well as public transit. The site has the ability to go vertical and add apartment or office space to further activate the vibrancy of the trade area.

5) Local and regional operators a critical part of the mix

Oakland, Berkeley and other communities continue to pass laws restricting formula or chain retail as defined by the number of existing locations. In some municipalities, the threshold can be as low as 10 locations. This can backfire for communities as they lose out on retail taxes and the lure of larger retailers drawing additional traffic that boosts sales at neighboring locally owned shops.

There needs to be a balance between national and local brands within a shopping center's merchandising mix. Even corporate tenants understand the value of being "local" and are redefining their product and services by tailoring to individual markets. Gensler's Barry Bourbon says increasingly more retailers are requesting stores designed to embrace a local market's unique character. A few of Barry's recent clients taking the approach include backpack company Timbuk 2, Kit and Ace clothing and SoulCycle (above is the San Fran location on Castro Street).