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Retail construction, occupancies improved in 1Q 2013

Construction of new San Diego retail space picked up in the first quarter of 2013, and vacancies continue to decline.

“It’s like the first time in about five years that we’ve seen projects under construction,” said Bill Thaxton, a Flocke & Avoyer senior vice president.

Thaxton said grading is nearing completion for the planned 270,000-square-foot La Costa Town Square development at the corner of La Costa Avenue and Rancho Santa Fe Road.

The center -- Thaxton is handling the leasing -- is a development of Safeway Corp. (NYSE: SWY) subsidiary Property Development Centers, Inc.

A 57,000-square-foot Vons store is the only named anchor so far.

“We’re negotiating with a fitness center that would take 40,000 square feet, a 14,000-square-foot drug store, tenants for three banks and a service station,” Thaxton said.

Thaxton said once the grading has been completed, construction should happen quickly. Completion is slated for April of next year.

The CoStar Group (NYSE: CSGP) reported retail properties under construction include a 153,974-square-foot Lowe’s (NYSE: LOW) home improvement store by locally-based Sudberry Properties at 2601 Palomar Airport Road in Carlsbad.

It is expected to be delivered during the third quarter of 2013.

The only other construction activity cited by CoStar were a 13,984-square-foot property also being developed by Sudberry at 2510 Palomar Airport Road, and 9,777-square-foot retail property known as the Seaside Village Corner at 880 Carlsbad Village Drive in the North Coastal city by Bonsall-based Veck Investment Properties.

Retail buildings completed in first quarter included the 63,941-square-foot Flower Hill Professional Center at 2600 Via de la Valle in Del Mar.

About evenly divided between retail and office; a 31,000-square-foot Whole Foods Market (Nasdaq: WFM) anchors the retail portion and Sharp-Rees Stealy clinic takes much of the office space.

Flower Hill has also added a Burger Lounge, a restaurant by Matt Gordon called Sea and Smoke, and a Cucina Enoteca occupying a former Chevy’s space.

Another finished retail property is a 14,408-square-foot building at 1306 Broadway in El Cajon that is 100 percent occupied by a Walgreens store.

Tenants moving out of large blocks of space in 2013 included Ralphs leaving 35,000 square feet at The La Mesa Center, Office Depot (NYSE: ODP) departing 28,799 square feet at North County Square in Vista, and Staples (Nasdaq: SPLS) moving out of 24,049 square feet at Park Valley Center in Mission Valley.

Tenants moving into large blocks of space in 2013 included Woodbridge Interiors into 43,514 square feet in the Metroplex Shopping Center on Miramar Road, and Sav-A-Lot moving into 22,243 square feet at Coronado Square in Imperial Beach.

The largest lease signings occurring thus far in 2013 included the 29,158-square-foot transaction signed by First Korean Market at 4611 Mercury St. in Kearny Mesa, the 18,172-square-foot-lease signed by PetSmart at Mission Marketplace in Oceanside, and the 13,618-square-foot-lease signed by American Duty Free at 601 E. San Ysidro Blvd.

Smashburger, the gourmet hamburger company, has announced it will be adding its 11th franchise in the county in San Marcos on May 1.

The recently expanded Westfield University Towne Centre mall has added more than 21,000 square feet for both sit-down and fast-food restaurants.

Along with the sit-down Seasons 52 and Eureka! Burger, new offerings also include Tender Greens, Noodles & Co., Veggie Grill and Jersey Mike’s.

Fourteen existing food court spaces have also been renovated.

Thaxton said a former Blockbuster Video space in City Heights has been divided for a Wing Stop and a tortilleria, and he is currently negotiating with a drive-through gourmet coffee company for former Blockbuster space in the Midway Towne Centre on West Point Loma Boulevard.

The county’s retail vacancy rate has steadily decreased at a time when lease rates are flat.

CoStar said the level went from 5.2 percent in 2012's second quarter, to 5 percent at the end of the third quarter 2012, to 4.8 percent at the end of 2012's fourth quarter, to 4.6 percent in the first quarter of 2013.

Even with a 4.6 percent direct vacancy rate, it still translates to 5.97 million square feet of direct and 6.24 million square feet of overall availability.

CoStar tallied 242,740 square feet of net absorption in the first quarter of 2013.

The quarterly countywide net absorption figures have bounced around during the past year -- from a low of 121,015 square feet in the second quarter 2012 -- to a high of 702,710 square feet in the fourth quarter 2012.

Thaxton said with the market strengthening, retail center sales have been few and far between.

One during the quarter was the $8.16 million purchase of a 36,245-square-foot auto dealership at 777 Camino del Rio South by a unit of University Towne Centre-based Sunroad Enterprises at the end of March.

Earlier last month, a unit of JBM Properties of La Jolla paid $8.1 million for the 38,984-square-foot Tierra del Rey retail center in Chula Vista.

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