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Retail market continues downturn in first half of 2009

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The San Diego retail market continued to worsen during the first half of 2009 as the recession forced many retailers to close their doors or file for bankruptcy. That's the word from CB Richard Ellis, though its latest report adds that hope is not lost.

CB Richard Ellis reports the countywide retail vacancy rate increased to 5.1 percent at the end of the second quarter of 2009, compared to 4.2 percent at the end of the quarter. This figure was somewhere between 3.5 percent and 3.8 percent a year earlier, depending on the survey.

Although retail vacancy continues to rise, CBRE concludes that San Diego's retail market should withstand the current market conditions better than most other retail markets across the country.

A major reason is with only 120,000 square feet of inventory delivered to the market year-to-date and only 20,000 square feet more expected to deliver by year end, retail vacancies in the county should remain relatively stable.

Though the market may be stable, it hasn't been easy. The loss of Mervyn's, Linens and Things, Circuit City and Sam Goody's have hammered suburban and downtown markets alike. And, just because you own a trophy downtown office building doesn't mean you can get your tenants to pay.

Wereldhave, which owns the 300,000-square-foot DiamondView Tower office building overlooking Petco Park, filed lawsuits against six of its ground-floor retailers for nonpayment of rent earlier this spring.

The largest of these tenants is the Fit Athletic Club that at last check occupied nearly 37,000 square feet on the ground and second floors. FirstAgain LLC, an online consumer lender that had occupied more than 17,000 square feet in the building before its business started sinking, was also among the delinquent group.

The troubles for retailers in downtown San Diego don't stop at the bottom of office buildings. Retailers, who may be on the ground floor of high-rise condominium projects that have stalled in the recession, have been hit hard as well.

In the case of a submarket that CBRE identified as downtown/Hillcrest/Old Town, there is an enormous difference between the direct vacancy rate and the availability rate that includes such factors as sublease and soon-to-be-available space.

Although the downtown/Hillcrest/Old Town submarket had just a 4.5 percent direct vacancy rate, the figure jumps all the way up to 20.5 percent when the availability rate is considered. The huge disparity is generally attributable to a large amount of sublease space on the ground floors of many of these buildings.

To the north, a Marshall's is going into a space that had formerly been occupied by a CompUSA and a Yaohan Japanese grocery before that at the Hawthorne Retail Center in Kearny Mesa.

A little further north in the Rancho Penasquitos Town Center, Kimco Realty still needs to fill what had been a Radio Shack space two years ago and Café Jasmine is the latest tenant in a restaurant space that has turned over no fewer than five times in the past 15 years.

Carmel Mountain Ranch-area shopping centers have continued to perform well in a neighborhood of higher middle income residents, but the submarket has to find ways to refill spaces vacated by Mervyn's, Circuit City Linens & Things and others. While this may seem like a daunting task in this economy, retail brokers commonly refer to this trade area as one of the strongest in the county.

Carmel Mountain Ranch posted a 6 percent vacancy rate and an 8.9 percent availability rate in the second quarter according to CBRE, which is considerably higher than normal for this market.

Finally, in nearby Poway, citizens and city officials are debating the merits of expanding what is currently a 142,000-square-foot Wal-Mart store on Community Road into a 197,000-square-foot Supercenter.

Although many people have said they would like the convenience, others warn the Supercenter would end up cannibalizing other stores such as a neighboring Von's and Albertson's and generate more traffic than the Community Road can handle.

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