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Tight Retail Market a Buffer From Closures

San Diego County dodged the bullet when nationwide store closings were carried out in recent months by several major retailers, including Macy’s, Walmart and Sears.

It may not be so lucky with Sports Authority. The Colorado-based retailer recently announced that three local stores — in Escondido, La Mesa and Rancho San Diego near El Cajon — were among 140 nationwide that it plans to close as part of its Chapter 11 bankruptcy filing.

The remaining two-thirds of its stores, including six others in the local market, are candidates to be sold off to other retailers or liquidators, with Sports Authority in talks with several potential buyers.

Experts say the nationwide retailer closings stem from a variety of factors, including moves to shutter underperforming stores, downsize the footprint of locations, and better coordinate sales and deliveries between online and off-line channels.

More U.S. retail closings could be on the way, with pending closures recently announced by chains including Kohl’s, Staples and Office Depot — the latter two of which are battling with regulators to get a previously announced acquisition and merger approved.

However, thanks to continued strong retail fundamentals, vacancies created during the past decade in the local market — by big-box and smaller-format chains — generally have been refilled relatively quickly. CoStar Group put San Diego’s countywide retail vacancy at 4.8 percent at the end of 2015 — still among the lowest for major metro regions, with space availabilities even tighter and rents on the rise in local markets such as Del Mar, La Jolla and Carlsbad.

Optimistic Outlook

Leasing brokers for Grossmont Center, where the La Mesa Sports Authority is located, are optimistic that the space will be filled soon if it is indeed vacated.

“It’s not a fait accompli that the Grossmont Center store is going to close,” said Mike Moser, principal with Retail Insite, noting that Sports Authority’s bankruptcy situation is fluid and stores on the company’s closure list could still end up being sold off instead. “But we’ve received inquiries from a handful of potential tenants who are interested in going in there if we get the space back at Grossmont Center.”

Moser said he could not specify which companies have shown interest in the La Mesa location. And while he does not represent the center owners at Escondido or Rancho San Diego, he predicted that those sites also won’t be empty for long.

For one thing, Sports Authority’s national competitors, such as Pennsylvania-based Dick’s Sporting Goods, might take the opportunity to boost their San Diego County presence, similar to the way in which Smart & Final, Gelson’s Markets and other grocers capitalized on Haggen Inc.’s departure following its bankruptcy filing.

There are also numerous other non-sporting-goods chains still on the hunt for expansion spaces, including Burlington Coat Factory, Ross Dress For Less, T.J. Maxx, Marshalls and HomeGoods.

“It’s such a tight market right now, and it’s very tough to get new retail centers entitled and built here,” Moser said.

In its own recent year-end report on the San Diego County retail property market, brokerage firm Cushman & Wakefield noted that several retail categories are currently in downsize/consolidation mode, including mid-priced grocers, drugstores, office supply retailers, furniture and consumer electronics sellers, and general department stores.

The Replacements

However, other categories have companies that are seeking to expand or establish their first presence in the local market. Those include fast-casual restaurants, breweries, specialty and discount grocers, fitness and health clubs, spas and other personal-care salons, and medical service providers such as dentists and optometrists.

The expansion-oriented categories are among those being scouted constantly by local officials including Pamela White, senior economic development coordinator for the city of Santee.

While Santee was not hit directly by Sports Authority’s bankruptcy, the city had long been hoping to lure a major sporting goods retailer to the city, to complement its Sportsplex USA facility which has long drawn nationwide softball and soccer tournaments among other high-profile sports events to the region.

The city may now have to recalibrate its retail strategy amid continued consolidation in sporting goods and other retail segments. Generally, White said the city prefers to prepare well in advance for the potential departure of retail tenants, and has recently been able to fill vacated spots within one to two years.

Some situations were more of a struggle than others, but Santee center operators were able to replace a departed Rite Aid with a Grocery Outlet; a vacated Fresh & Easy Neighborhood Market with a Bevmo; a shuttered Hollywood Video with a Skechers; and a closed Staples with a new DSW shoe store.

Next on Santee’s Plate

Santee’s next challenge is replacing a 10,000-square-foot HomeTown Buffet that recently closed at the city’s Home Depot and Costco-anchored retail power center, known as Santee Town Center. It was one of six HomeTown Buffets in San Diego County and 74 restaurants nationwide closed by Ovation Brands.

Ovation was acquired in August 2015 by Texas-based Food Management Partners, which earlier closed several California Coco’s and Carrows restaurants after purchasing and relocating those chains’ Carlsbad parent, Catalina Restaurant Group.

Santee and retail center operators have already received significant interest from other companies since HomeTown Buffet closed in early February.

“I’m optimistic that we can have that filled soon,” White said. “And when I say soon, I think that can be by this summer.”

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