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Walnut Creek Magazine

Walnut Creek's Rising Vacancy Rate

Nov 10, 2023 08:42AM ● By Pam Kessler

Downtown Walnut Creek's vacancy rate has surged to 10.37% at the end of Q3, marking a disturbing trend. Walnut Creek Magazine turned to John Cumbelich, a respected commercial real estate broker, for insights into market dynamics. His firm, John Cumbelich & Associates, is recognized for their data-driven retail market updates used by media, investors, brands, and municipalities to navigate the complexities of the retail real estate market.

Q: How would you describe the current state of downtown Walnut Creek’s retail market?

A: The market is facing many challenges. Outdated zoning policies and overbuilding are the key issues. A significant influx of apartments and condos has altered the demographic, favoring single occupants over families, reshaping the consumer base.

Q: Despite these challenges, Walnut Creek appears to be booming compared to other Bay Area cities. Is this an accurate observation?

A: When you look closer, it’s not a balanced boom. While certain areas prosper, the historic downtown faces persistent vacancies, with some properties remaining unoccupied for extended periods. The expansion of Broadway Plaza over the past decade and the rise of online retailing swamped the market with empty retail spaces. 

At the same time, new retail hubs like The Veranda in Concord and City Center in San Ramon added to the competition attracting great tenants—West Elm, Slanted Door, Roam, The Gap, Pottery Barn Kids, Cost Plus. The supply has outpaced demand, leading to higher vacancy rates.

Q: How has the expansion of Broadway Plaza impacted the historic downtown?

A: The 2010 expansion added a massive 300K-SQF of retail space to the shopping center, which led to a reshuffling of tenants. Major brands like Apple, Tommy Bahama, H&M, and others relocated to the plaza, sparking a new wave of vacancies in the downtown area. This set in motion a domino effect of cascading vacancies, a trend that continues to affect the market today. 

Q: Despite efforts by the city’s economic development department, as well as significant investments in studies and consultants, why does the vacancy trend continue?

A: The core issue lies in the outdated PR (PedestrianRetail) Zone policy, which restricts ground floor spaces to retailers and restaurants in the historic downtown. This policy, once effective, is now a hinderance, given the overbuilt market and competition from nearby retail centers. (Note: The PR Zone is roughly defined as the area between Mt. Diablo, Broadway, California, and LaCassie Avenue.) We can show you data—dating back 20 years— this one small area represents 25-50% of the total vacancies downtown. Flexible zoning is an easy solution.

Q: What policy changes would you recommend for economic development?

A: Broadening the permitted uses in the historic downtown is crucial. Allowing diverse businesses like real estate offices, financial services, and certain medical facilities can fill vacancies, create jobs, and stimulate local spending. Instead, the current restrictive approach results in lower-quality retail filling these spaces or long-term vacancies, problems that could easily be resolved with more flexible zoning.

Q: What’s your take on competition from neighborhood strip centers.

Like the downtown, these centers suffer from overbuilding. Developments like The Orchards and Rossmoor Shopping Center have added more space than the market can absorb, altering the dynamics of lease negotiations, shifting the advantage to tenants, and limiting landlords’ ability to be selective about the tenant mix. It opens the door to less desirable uses filling previously highly competitive spaces.

Q: Does Walnut Creek have too many restaurants?

A: YES. The excessive number of eateries is unsustainable, leading to closures and exits of established brands.

Q: Looking ahead to 2024, what are your expectations for the market?

A: The market is treading water. Despite leasing gains, the rise in vacancies, especially among small businesses. The overall vacancy rate continues to climb, now exceeding 10%. New vacancies include First Republic Bank, US Bank, Arthur Murray Dance Studio, Prima Vini, among others. Others like Sweet Maple opted out of opening downtown.

Q: Anything else you would like to add?

While leasing activity has slowed, it hasn’t stopped, and several key spaces remain in negotiation. The Waymark continues to attract tenants — Luna Sea Lounge, Mochinut, and High Wire Coffee—offering a glimmer of hope in a challenging market.

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