Tenant Darlings:

It is no secret that Whole Foods and Nordstrow have a certian cachet that makes them the darlings of the retail industry. But they are not the only tenants that can improve the financial health of a retail development. Attracting the right home improvement, electronics and office supply store is almost as important as choosing the right location. For example, Michael Staenberg prefers Lowes over Home Depot, Best Buy over Circuit City and Staples over Office Max or Office Depot. He has learned what works as President of St. Louis-based powerhouse THF Realty, a development firm with more than 100 shopping centers comprising 20 million square feet in 23 States.

"Women like Lowes better," Staenberg said. It is easier to navigate and it doesn't feel like a contractors' store. Home Depot caters more to contractors. And because they remember JC Penney from the old days, they perceive Kohl's as more fashionable and a better value. TJ Maxx and Marshall's stand on their own as desirable tenants.

In Northern California, developers work first on attracting anchor stores such as Target, Nordstrom or either Whole Foods or Safeway, said Rhonda Diaz, Vice President of San Francisco based Terranomics Retail Services. Next in the merchandising strategy are the junior anchors, with restaurants being a dominant player, Diaz said. Anchors and restaurants drive foot traffic at retail developments.

While Barnes and Noble and Borders have made modest inroads in San Francisco, independent booksellers still dominate the market. About 59 percent of the stores are locally owned, according to the San Francisco Retail Diversity Study by Civic Economics, an economic analysis and strategic planning firm with offices in Austin, Texas and Chicago.
Local retailers in the sporting goods, toys and limited service dining arenas also dominate the bay area. Sixty-three percent of sporting goods stores are locally owned, as are 52 percent of toy stores and 70 percent of limites service restaurants. In this retail climate, that's a good thing.

Malls vs. Neighborhood Centers:
With the second-strongest retail market outside of New York, San Francisco's downtown shopping scene is thriving, but it is not the only game in town. Well-placed suburban centers, such as San Jose's Santana Row, also attract shoppers that look for the high-end experience, even if it is mix of offerings is slightly different from the one in the urban shopping centers.

Each has a place in the current retail market. Bustling Union Square is home to Barney's, Macy's, Gucci, Tiffany and Hermes, while the 1 million-square foot Westfiled San Francisco Centre, completed just over a year ago, is 99 percent leased with 170 tenants that include Bloomingdale's Kate Spade and True Religion, among others.

"Tenants in these centers cater to a more sophisticated shopper with unique concepts, higher quality and more diverse selection of merchandise," said Rhonda Diaz, Vice President of Terranomics, Northern California's largest retail brokerage. They are international in scope.

Suburban retail developments traditionally have focused on serving their neighborhoods, often with grocery stores as anchor tenants. Regional retail centers can draw people from within a 20- to 30-mile radius, which may explain the sprawling parking fields. All that's starting to change, however.

"As the real estate industry gets more green, suburban developments will evolve into a mixed-use format that meets a growing demand for a way of life that doesn't require getting in the car for a quart of milk or a visit to the local wine bar," Diaz said.

###