DOWNTOWN RETAILMar 21, 2017 03:39PM ● By Lou Fancher
John Cumbelich has his finger on the pulse of Bay Area commercial real estate. From the Walnut Creek headquarters of John Cumbelich & Associates, the company’s founder and CEO brings over 30 years of real estate know-how to properties and clients that include Tiffany & Co, Apple, GAP, Target, Walmart, Bank of America, Pier 1 Imports, Pottery Barn, Sprouts and Starbucks. Attracted to a career that afforded him time away from the desk so he could be outdoors “kicking the tires with buyers and sellers,” Cumbelich says the industry has become institutionalized with more assets held in fewer hands. Even so, his player-coach managerial role as a business owner gets a daily jumpstart from the real estate market’s ever-cyclical swings.
The tale of what could be called Walnut Creek’s “two cities”—Broadway Plaza and the traditional downtown area north of Mt. Diablo Boulevard—reflects the market’s volatility, according to Cumbelich. Overall the city’s vacancy rates during the fourth quarter of 2016 rose slightly from 4.8 to 5.1 percent, but “there’s not a vacancy problem by any conventional metric,” says Cumbelich. “Measured against other markets or internally, it’s strong. Ninety-five percent occupancy isn’t a problem. We’re only a few points away from what is effectively full occupancy, based on historical highs of 97 percent.”
Even so, he says Broadway Plaza’s expansion has temporarily “sucked the oxygen” from other leasing projects. “The mall’s 100,000-square-feet of newly available world-class inventory has allowed vacancy to creep up. This combined with the new Agora multi-use development at Newell and Main added another 35,000-square-feet of new space to the leasing pie,” he says. Confident excess inventory will be absorbed, Cumbelich says the owners of Broadway Plaza have shown they can rethink their initial strategies to achieve occupancy goals. “They thought a super-premium brand anchor tenant would attract others, but none wanted it. That told me Walnut Creek is a lifestyle market, not a Gucci market. Old Navy is about the farthest you can get from Neiman Marcus.”
Cumbelich finds the shift “heartening” and says Walnut Creek is “the capitol city in the East Bay” for retailers. Noting a void in regional malls, especially in Oakland, he says national brands look at the Bay Area and leap to capture east bay shoppers by selecting Walnut Creek. “There’s a herd mentality, and as we have successful retailers, others follow.” He points to recent openings at Broadway Plaza: H&M, Zara, True Food Kitchen and Kendra Scott.
Which begs the questions: Why did Barnes & Noble and Sports Authority close? And why is Tuesday Morning relocating? “Sports Authority had bankruptcy and closed their stores. That’s not a local matter,” he says. “Barnes & Noble went out because of the devolving nature of bookstores. A 30,000-square-foot bookstore is a yesteryear’s concept. Amazon Books coming in with a 5,000-square-foot store makes sense. It’s no different than the electronic market, which went from big box to smaller-footprints like Apple. And discount doesn’t work. Tuesday Morning had thin margins and needed attractive rental rates to pencil out. The temporary vacancies will be absorbed.”
The traditional downtown is a different story. Forty to fifty percent of the roughly 115,000-square-feet of vacancy is located in the pocket north of Mt. Diablo Boulevard where assets are owned by family trusts, individuals and longtime owners. “You have inconsistent levels of investment and varying degrees of how much energy property owners put into the buildings,” says Cumbelich. Mixed rental rates and leasing terms mean vacancy issues will exist until there’s enough pedestrian traffic to support the area. Large footprint retail tenants that can pay the high rents—grocery stores, office buildings and parking lots—are not viable because large spaces are non-existent.
Housing, Cumbelich says, is the key variable for solving the area’s vacancy issues. “The most meaningful n Walnut Creek’s downtown real estate cycle is the introduction of more housing,” he says. With occupancy rates comparable to the Pleasant Hill and Lafayette he says, “It’s good times for commercial real estate in the East Bay. Rents are at historic highs, occupancy is near record, and new development is coming on the market.”