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Remodeling could be key to reviving older retail centers

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Most property owners, at one time or another, need to make improvements or upgrades to keep occupants happy. Whether you own an office building and need to make extensive tenant improvements or you're a homeowner who wants add a second story, the idea of "starting over" can be more appealing than remodeling, but not often feasible logistically or financially.

Many retail center owners in San Diego encounter this same challenge as aging centers strive to stay competitive with newer retail developments. While the concept of remodeling is not new, it could become more common over the next several years as retail vacancy remains low and developable land in the county remains at a premium, especially in more dense areas. With demand so high, owners have been reluctant to sell their retail centers but recognize the need to re-energize them in order to draw new tenants and continue to generate business.

Joe Yetter and Mike Clark of Grubb & Ellis|BRE Commercial have teamed with multiple owners and developers in the last five years to identify and execute retail remodeling projects. Utilizing their expertise in retail leasing and familiarity with the San Diego market, the team advises owners on an area's potential asking rental rates, and the increase in property and area value that could result from remodeling.

"One of the primary objectives in remodeling an existing center is to increase the value of the property by making it more visually appealing to both current and new tenants," Yetter said. "A new mix of tenants can ultimately draw additional customers as well."

At Canyon Plaza in Chula Vista, the owner repainted, made signage changes, took off old-style timber beams that supported storefronts and raised tops by approximately eight feet to switch up depth and height. The result: a brighter, livelier center that has attracted several new tenants since its 2004 remodel and nearly tripled the asking rental rates.

Throughout California, including in San Diego, shopping center and mall owners are redeveloping their existing properties into open-air lifestyle centers or incorporating mixed-use plans into their design. However, the majority of strip malls are already open and zoning issues preclude them from mixed-use planning, so remodeling is often the best course of action.

Yetter notes that in many cases, remodeling can achieve the same results with respect to increasing property value and rental rates as redeveloping -- and is more cost-effective for owners.

"Many owners simply don't have the capital or the time to devote to a lengthy project redevelopment," Yetter said. "In our experience, updating a center's look with paint or height changes can revitalize a center and attract new major tenants. This option saves owners money in the short-term, and potentially increases their investment in the long-term."

Recently at Palm Plaza at 3320 Palm Ave., a mix of new paint and alternate building heights attracted a new anchor tenant, CVS Pharmacy, and brought in a coveted Starbucks drive-thru. Rental rates have also doubled from what they were prior to the remodel.

While raising rent can conceivably meet resistance from current tenants, Yetter says the majority of them understand the long-term benefits for their own business that can result from the center's improved image and value.

Some tenants opt to leave rather than pay the increased rates, but these vacancies allow for a new mix of tenants to populate the center, and this ultimately breathes new life into the project.

Bringing new tenants to a center is important to stay competitive as a business, but is also important in attracting customers. Today's consumers are savvier than ever, and are attracted to centers with anchor tenants such as Vons or Trader Joes and major tenants like Starbucks. Perhaps most importantly is the convenience factor. They are drawn to centers where they can take care of all their needs at once. Remodeling provides an opportunity for older centers to reinvent themselves and place tenants that will once again entice neighborhood consumers to shop closer to home.

"There are not many areas left in San Diego that can accommodate new retail development," Clark concluded. "Mixed-use will remain a popular alternative, but not all retail centers are zoned for mixed-use. As land becomes more sparse, remodeling will continue to be a primary means for owners to increase property value, draw a new mix of tenants and stimulate business."


Cornelius is public relations manager for Grubb & Ellis|BRE Commercial.

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