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La Jolla retail market size overstated, but strengthening

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Leasing activity in La Jolla's retail market, which languished during the recession, picked up last year in part to increased property sales, and appears to be better today than statistics might indicate.

Phil Wise, a Colliers International senior vice president, said La Jolla’s retail vacancy stood at 7.55 percent in the fourth quarter 2012 compared to about 5 percent earlier in the year.

It is not because of market deterioration; instead, the amount of retail space was overstated by 125,000 square feet earlier in 2012 because it had been lumped in with office space in reports on the properties conducted by The CoStar Group (Nasdaq: CSGP) and other firms.

“The attached retail vacancy report corrects this error as we generated our numbers by looking at each and every building reported and counting only that retail space that is truly retail," Colliers wrote. "As a result of this effort the total amount of retail space in the village of La Jolla shrank.”

Colliers added the revised figure totals about 1.18 million square feet.

Mike Slattery, head of Cassidy Turley’s La Jolla Property Group -- who has been covering the submarket for the past 25 years --said in the village part of La Jolla's core area, the average retail vacancy is less than 1 percent.

“That’s in the area from 800 or 900 (square feet) to the 1200 block of Prospect Street and the 7800 to 7900 block of Girard Avenue,” Slattery said.

The structure with the most retail availability remains 35,997-square-foot Wall St. Plaza at 7863-7877 Girard Ave. with 29,724 square feet unoccupied, or an 83.6 percent vacancy.

“Once this property, which was recently purchased (for $3.75 million in November) by Davlyn Investments, is renovated and leased, the retail vacancy rate in La Jolla will be dramatically reduced,” Colliers wrote.

John Hale, Davlyn acquisitions director, said the plan is to keep the property a pure retail building.

“We need to solve the issue of the lower floor retail [which is currently below the level of the street] and we will need to open the property back up,” Hale said.

Hale added the high vacancy could be a good thing during the renovation, as few tenants will need to be displaced.

Tenants include Panera Bread, Lawrence Poon Jewelry and Galaxy Enterprises, a maker of shower enclosures and door handles.

Regardless of the retail vacancy, the La Jolla retail and office markets proved to be active as last year drew to a close.

The Shepherd Trust portfolio -- which originally had a mix of no fewer than eight separate retail, office, storage properties and parking lots in La Jolla -- has begun to be sold off.

The properties are located along Fay Avenue, Girard Street, Wall Street and Ivanhoe Avenue.

The Shepherd Trust portfolio's largest structure is the roughly 33,000-square-foot retail and office building at 7438-7470 Girard Ave, which was reportedly in the process of closing escrow in January, and is expected to undergo a facelift.

Tenants include 3D Enterprises, John’s Tailoring Shop and Obac Investments.

Slattery, who is handling the transaction, explained the property consists of about 20,000 square feet of retail and 13,000 square feet of largely leased office space.

The Shepherd Trust has sold a 3,500 square-foot retail and office property at 1115-1123 Wall St. for $1.8 million in October; an 8,500 square-foot office building at 7850 Ivanhoe Ave. for $1.6 million in November; and $2.2 million for the 8,200 square-foot office/retail building at 7441-7445 Girard Ave. in October.

Other commercial property sales occurred in La Jolla last year. These included the $6.15 million sale of the former 25,569-square-foot headquarters of The Copley Press Inc. at 7776 Ivanhoe.

Commercial sales from late last year also include the single-story, 7,000-square-foot retail property at 7720-7728 Fay for $3.2 million to La Jolla Cosmetic Inc. for its own operations.

The property's current tenants are relocating to other village retail locations.

Wise said the leasing of office space could help retail.

He said a Fortune 500 company has been eying the vacant 26,728-square-foot space in the 60,921-square-foot building at 888 Prospect St.

Pascal Aubry-Dumand, a Cushman & Wakefield associate director who represents the property, declined to comment on any prospective tenants, but did say there has been a lot of interest in the property.

“They have had more tenant interest than they have space,” Wise added.

Colliers said, “2012 actually was a pretty good year for commercial real estate in La Jolla and it appears that this trend will continue through 2013.”

“Our office is doing well, and it seems the whole country is on the rebound,” Wise added.

Slattery said he is more cautiously optimistic.

“There are still a lot of outside buyers looking for distressed properties,” Slattery added,

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