SAN BERNARDINO, CA-Few markets were harder hit by the Great Recession than the one-time boom towns of Southern California and the Southwest. Sandwiched between the two, San Bernardino County (booth CW149 at RECon) saw its own struggles.But now the region, particularly in and around San Bernardino County, is staging a comeback, with rising rents and even the glimmers of new construction. Scott Kaplan, senior vice president of CBRE, spoke with GlobeSt.com about the retail resurgence of San Bernardino County, the Inland Empire and the continuing challenges facing retail nationwide.
GlobeSt.com: How is the recovery going in the Inland Empire?
Kaplan: We are seeing an increase in retail sales in most of the markets of the Inland Empire region, in all sectors. Discount, power centers, community centers, even luxury is on the mend. We look at the bellwether projects for our market, the Mall of Victor Valley, the Shops at Chino Hills, Victoria Gardens, etc., and we’re hearing that the revenue numbers for most of them are up 5% to 10% over a year ago.
GlobeSt.com: Are some cities bouncing back more than others?
Kaplan: Yes. We’re following common post-recession recovery patterns. They typically run coastal and urban, then inland. Last year we felt it in the markets touching the coastal markets. Chino Hills would be in recovery a year ago. Ontario would have been a market recovering a year ago. Now, the recovery rings have expanded to more markets, including the high desert region, Victor Valley, etc. If there were three recovery regions last year in our market, there may be seven or eight this year that are stronger.
GlobeSt.com: Is this affected by the status of Los Angeles or Long Beach?
Kaplan: I don’t know that we’re related to those economies. In general, what happens in retail is that retailers feel more
comfortable expanding where there is dense population and where New York says capital should be. The biggest difference between a year ago and today [is that Las] Vegas, Phoenix, and the Inland Empire were all “Red X’ed” in the capital
markets until, probably, this year. We’ve seen that turn on like a spigot, which has been very helpful to stimulating our local economy. Capital, of course, is the oxygen of everything we do in all the product types.
GlobeSt.com: What retailers are expanding besides the Macy’s to coming the Mall of Victor Valley?
Kaplan: Neiman Marcus Last Call at Ontario Mills is an important name. The Mills has been up significantly over the last three years as they’ve added more tenants, and Neiman Marcus is an important name for them and for our market. Macy’s has been slow to do deals across the country. As we understand, they’re only opening three stores next year, and one of them will
be at the [Mall of Victor Valley], which we think is a defining moment for our market.
Charming Charlie is expanding across our market, doing multiple locations. We’re working on a luxury theater deal in Ontario, Cinetopia out of Vancouver, WA. The lifestyle sector has been beaten up across the country, and has weathered the storm. The brands that are still here are the brands that are expanding. It cold be Coach, White House Black Market, Chico’s. Rue 21 did a deal in Apple Valley.
We tend to generalize in our business. We tend to say “This sector is dead, this sector is expanding.” But generalizing is dangerous. It’s really the health of each individual retailer, and many of them are in a managed expansion mode.
JCPenney recruited senior level Apple executives to reshape the JCP brand, and is doubling its size at the Mall at Victor Valley.
They’re reformulating their brand, but the fact that they’re doubling their size in our market is pretty meaningful and a big statement.
Overall, the national benchmark for retail is sales per square foot. Just to pick a number, $400 per square foot in sales performance is thought of as the top 25% of projects in the country. All of our [bellwether] projects, including the [Mall of Victor Valley] are running over that benchmark, and I think that’s meaningful.
GlobeSt.com: Does that mean that this recovery is sustainable?
Kaplan: Nobody knows the answer to that, except that we’ll be able to retroactively look back and see whether what I’m about to say is right or wrong. It’s just the cycles. Last year you started to see pockets and sporadic markets and green shoots. This year, there is clearly a pattern. We track demand, vacancy and, obviously, capital is critical.
We have a lot of developers and architects calling us again. The Architectural[Billings] Index, which measures the workload of the top 100 firms in the country, is at its highest rate for our market since 2006. When a recovery happens, architects are usually the first guys to get the call. Our architects are very busy and hiring back.
We’re seeing land trade again, and prices that were very, very depressed snap back in the retail sector. Last year, they snapped back in the industrial sector, and they’ve snapped back in the multifamily sector in our market. But clearly, there was little to no retail development, and we’ve been working on and have knowledge of many projects that have been restarted and replanned. There will be a runway period from the time we know about those until we see sticks in the ground, but once that gets going, it takes another three to five years to get those projects done and expanded. Really, it’s about retail demand and what retailers are telling Wall Street. It’s about their expansion plans.
One thing we haven’t had snap back is our housing and unemployment. We’re not tracking as well as the rest of the country, but
unemployment is improving over a year ago, and you can’t imagine the number of builders who are building apartments. When it’s this heated, it usually signifies that we’re at the end of the multifamily cycle or that we’re peaking. We’re starting to hear single-family residential developers buying residential lots. That’s a very good sign if we can get the single-family market going in the right direction.
Is it going to be a protracted recovery? This year, it feels like there are too many signs for it not to be the start of the next new
cycle. If you asked me this a year ago, I would have been more cautious in my answer.
GlobeSt.com: What are you looking to do at RECON?
Kaplan: We have more meetings this year than we’ve had in
the last five years, which is emblematic of what we’ve been discussing.