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Small shopping centers continue to have tough time leasing

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The generally small, unanchored strip shopping center may have a challenge staying afloat in the best of times; in an ongoing slowdown, the difficulties are only magnified.

How do landlords of these small centers keep them filled? There is no single answer.

"Strip centers are historically more difficult," said Bill Thaxton, a Flocke & Avoyer senior vice president. "You have to try and adjust the tenant mix so you can draw people at all times of the day."

A Starbucks or a Peet's Coffee & Tea can be an enormous help in getting the day going, but even in a small center, a balance must be struck in order to keep patron traffic flowing the rest of the time.

A Subway or a Submarina sandwich shop might be considered ideal for lunch, but brokers suggest an off brand might suffice if the center is in a good location.

Along with businesses such as thrift stores, burger restaurants and cleaners, "one of the sleepers we're seeing is the martial arts studios," Thaxton said. "Places where you can leave the kids and pick them up later are doing very well."

While business at burger places like Smashburger and Five Guys has been picking up, Thaxton said the flurry of self-service yogurt outlets have pretty much run their course. However, he added that places like a mom-and-pop taco shop or an Indian restaurant can make it given the right location, marketing and the quality of the food.

"If they have great concepts, they can even out-compete the national chains," Thaxton said.

Bread and butter tenants ranging from the cleaners to the restaurants may provide the core of a center, but Thaxton said taking the road less traveled may pay dividends as well. Great News Cookware & Cooking School at 1788 Garnet Ave. in Pacific Plaza in Pacific Beach is one of those unusual tenants.

"This is a one-off shop that draws from a wider radius than many of the other tenants around," Thaxton said.

Thaxton said it helps that vacancies seem to be stabilizing. The good news for tenants is they have far more options than they may have had in years.

To keep tenants and bring in new ones Thaxton said it is often necessary to renovate a center, as was done recently at the roughly 30,000-square-foot Midway Village Shopping Center in the Sports Arena area -- which had been home to a Long John Silver's before becoming a sit-down Mexican restaurant, which then became a Taco Bell. Wings & Things is another well-known tenant at the small center. Lesser-knowns are Charkbait Sportfishing and Fairouz Café, according to a website for the center.

Though the center itself is unanchored, it has the advantage of being close to Target, Home Depot, TJ Maxx, Sports Chalet and Ross Dress for Less.

Craig Duhs, a principal with San Diego-based Duhs Commercial, said the mom-and-pop retailers that predominate in the smaller, unanchored strip centers -- particularly those in weak locations -- are continuing to struggle.

"Landlords are offering more concessions like free rent," Duhs said, adding that two or three months on a five-year lease is about the going rate.

Just lowering the rent or offering concessions may not be enough at some locations.

"They also are being forced to be creative with their space. They might, for example, combine three or five units for a dollar store," Duhs said.

So what kind of tenants are looking for space? Along with all the burger franchises, Duhs has seen cellular phone stores, and typical sit-down restaurants that are expanding.

"And we've been seeing a lot of gyms. Fitness is definitely a big thing right now," Duhs added.

Tracy Clark, a Voit Real Estate Services senior vice president, said he has seen more dance studios, massage outlets, hair and nail salons and discount stores such as 99-cent stores at some locations.

"These aren't necessarily glamorous, but they can help fill out a center," Clark said.

Clark also said he is seeing plenty of restaurants, but said their owners generally don't want to be in a space that hasn't already been used for that use before. By the same token, if the previous restaurant failed due to a still-inferior location, the landlord may not be able to refill the space at all.

"There is sometimes no rhyme or reason as to whether a business succeeds or fails. You would have thought a Johnny Carinos restaurant would have been a natural in EastLake, but it closed and Chase Bank is taking the space," Tracy said.

Tim Kerrigan a CB Richard Ellis retail specialist and owner for the past 28 years, said his strategy is to never allow a vacancy to occur unless it is absolutely unavoidable. That said, Kerrigan emphasized that he would rather have a vacancy than a medical marijuana dispensary in a center.

"My phone has been ringing off the hook with these guys," Kerrigan said.

Clark said while he personally hasn't seen landlords put medical marijuana dispensaries in their centers, he too has heard of it happening.

As for how to bring more desirable tenants into a center, Kerrigan said incentives such as a modest tenant improvement allowance on reused space and perhaps a 25 percent discount on first-year rent are just a couple of ways

"You might also take a real hard look at triple net charges. When expenses get too high, the space stops being competitive," Kerrigan said.

Kerrigan said these approaches have helped bring in a wide range of tenants from auto parts dealers, to foot massage locations and Vietnamese restaurants to the centers he oversees.

"We relocated a La Mesa gun shop from an industrial to a retail space," Kerrigan said.

Kerrigan said unanchored strip centers in the Sports Arena area have been particularly successful and cited the success of what is admittedly a large unanchored strip center at about 50,000 square feet.

"Sherwin Williams came out of industrial space in the Morena area, into a Sports Arena space. We also put a 7-Eleven in there, a Subway and a Rock Church thrift store. That center was 30 percent occupied 1 1/2 years ago and today it is 100 percent full," Kerrigan said.

Duhs said medical groups seem to have constant demand for more space, and churches are increasingly seeking out older retail properties because they may not have other suitable sites.

Rents may be leveling off too, but Thaxton said they are still off about 20 percent.

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