A Great Combination

In a robust retail environment, some may argue that it takes less effort to succeed, but those who want to maximize their results realize that landlords and tenants must work hand-in-hand to achieve the best possible outcome.

A rising tide lifts all boats, right? Yes and no. With a nationwide retail vacancy rate of 4.1 percent in the first quarter, according to Colliers, it stands to reason that some landlords opt to view their vacancies as opportunities.

Just how big of an opportunity that open space can provide depends on a few factors, however. Naturally, there’s the shopping center’s location, class of space and foot traffic.

Those who simply want the rent roll to continue — perhaps with a nice a little bump — will take the first fish that bites.

Others are more discerning. They realize a vacancy’s potential is tied to other factors. These include whether their center (and vacant space) is positioned to attract the most popular and emerging brands, neighboring tenants and what type of tenant would be most appreciated by the community.


Health and wellness are inherently popular shopping categories in California, but owners who do their due diligence will be able to capitalize on their post-pandemic trends.

“The work-at-home trend has increased the dependence on our centers,” says Brian Sheehan, director of national accounts, Phillips Edison & Company (PECO). “Medtail is a fast-growing use in our grocery-anchored shopping centers, and we continue to see strong demand.”

The most popular medtail categories in PECO’s portfolio include urgent cares, veterinary clinics, chiropractors, dentists, and businesses that offer hearing, vision and physical therapy services. Sheehan lists AFC Urgent Care, FYZICAL Therapy & Balance, Humana, Heartland Dental and Pacific Dental as some of the biggest expanders within the firm’s suburban centers.

Lifestyle centers are capitalizing on these categories by selling the luxury associated with them.

“Wellness — that’s a category we would like to expand upon,” says Hedy Veverka, leasing for CenterCal – Southern California, regarding the company’s open-air lifestyle center 2ND & PCH in Long Beach. “The world has changed post-pandemic, with the way time is spent, how money is spent, the way people live their lives and the decisions that they make. They are very invested in their own health and wellness.”

Veverka notes the center has brought on medical and microfitness brands like One Medical, the NOW Massage, Skin Spirit, Barry’s, Be Fit Pilates and Grit Cycle to accommodate this health and wellness craze.

Glenn Rosen, senior vice president of national leasing for Centennial, also has this trend on his radar, though he admits he tends to seek out the unique tenants that can offer his customers a unique value-add.

“It’s not merely a consumer choice for health-conscious products,” he explains. “Consumers have undertaken a shift in how they engage with wellness-oriented experiences ranging from cold plunges to infrared saunas.”

With that in mind, Centennial has partnered to bring two new concepts to its Pacific City shopping destination in Huntington Beach. The first is Red-A Sauna Studio, an infrared sauna that offers red light therapy (RLT). The second is Salon Re- public, which houses 60 unique health, wellness and beauty specialists.

“It’s an attractive option for consumers focused on health and wellness goals,” Rosen adds.

Ryan Ash, vice president of development at Vestar, notes that although health and wellness plays well in California, that doesn’t mean any old space will do. Vacancies may be hard to come by, but so are today’s most popular tenants if you don’t have what they need. Or want.

Ash took that sentiment to heart when it came time to release a vacant 19,000-square-foot space at Peninsula Shopping Center in Rolling Hills Estates that was previously occupied

“The space had become dated and in need of refurbishment,” Ash says. “Both the landlord and the new tenant invested the necessary capital to improve the space, and now the business is flourishing to the community’s delight.”

Investing alongside a tenant in a space that needs renovations is a sound strategy in any market, Sheehan believes, regardless of the vacancy rate. That’s because retail leasing, as many know, is a long game. One built on relationships that will hopefully lead to not only lease renewals, but more locations down the line.

“Work together to ensure everyone benefits, and that includes offering fair lease terms,” he says. “Negotiate terms that benefit both parties on the subjects of balanced rent, tenant improvements and lease duration. Landlords should always view tenants as long-term partners, rather than transactional clients.”


No emerging tenant story is complete today without a por- tion being dedicated to food. Is this another trend accelerated by the pandemic? Yes. Are there certain dining and ambiance features unique to California? Also yes.

Wayne Williams, vice president of retail marketing at Lewis Retail Centers, sees non-chain bistro pubs as an extremely popular niche for his Golden State centers. There are three concepts, in particular, that are on their second and third locations within Lewis’ portfolio. These include Fire Rock Burgers & Brews, which is opening its second Lewis location at the Marketplace at Calimesa; Kenwood’s Kitchen
& Tap, which will open its second location at Town Center at the Preserve in Chino; and Left Coast Brewery, which will debut its third location at the Collection in Ontario.

Quick-service restaurants with small or limited menus are what’s thriving at PECO’s centers, Sheehan says. These include Roll Em Up Taquitos, Dutch Bros. Coffee, 7 Brew and SWIG.

Rosen notes that the restaurant’s concept, menu and following are all important when evaluating a potential tenant’s merits. On the flipside, he adds that landlords would do well to offer spaces that cater to the California lifestyle.

“Restaurants with patios that spill into outdoor public spaces is one of the biggest attractions right now,” he adds. “As consumers look for increasingly new and pleasing experiences, they are drawn to restaurants with patios that transition to common areas or outdoor public spaces, reminiscent of al fresco sidewalk dining abroad.”

This was the atmosphere Centennial was hoping to help Nardò Italian Restaurant create when it moved into Pacific City. Its offerings include outdoor areas that overlook Pacific Coast Highway and the ocean. They also connect to the center’s common areas — which should be a priority for landlords in and of themselves, Sheehan asserts.

“One way landlords can show that they’re working together with tenants is by improving common areas with landscaping, lighting, seating, art installations or interactive features,” he says. “Modern tenants appreciate flexible spaces and well-designed centers. For common areas, consider adding outdoor seating, green spaces and investing in public art installations.”

Modern tenants also appreciate modern consumers, which means their spaces sometimes need to be designed in a very purposeful manner. This is particularly true with tech-forward concepts.

Lewis Retail Centers, for example, has opened a Starbucks Café at Town Center at the Preserve that primarily fulfills in-app orders. The space features a large preparation area and very limited indoor and outdoor seating. Chipotle also recently opened at the center, but this concept only caters to in-app drive-thru orders. It doesn’t allow for any on-site/walk-up ordering.

“We believe that the app-only category was driven by the pandemic,” Williams says. “Not to say that it wouldn’t have happened eventually, but I think it really accelerated the adoption of app-based pickup concepts and features for operators. It’s a little too early to tell how successful these concepts will be, but we know the app-only trend has increased dramatically, so we anticipate it will do well at these locations.”

Sheehan thinks pandemic-accelerated concepts can certainly thrive in Califor-nia’s retail centers. Like other strategies, however, making these a success means landlords and tenants have to work together to get the space right and inform the consumer about the offering.

For landlords, he says communication is key.

“Maintain open lines of communication and regularly discuss concerns, opportunities and shared goals,” Sheehan says. “Provide resources like tenant portals, social media guidance and event coordination. You should also spotlight the tenant through a success stories-type feature on the center’s social media platforms.”

For tenants, flexibility in a tight market will always be a sound strategy.

“Begin your search well in advance,” Sheehan advises. “In tight markets, good spaces get leased quickly. Be prepared to act swiftly when you find a suitable option. Also, while it’s essential to have specific requirements, be open to alternative layouts or adjacent neighborhoods. Flexibility increases your chances of finding a space that fits your needs.”


Food and daily needs will almost certainly remain a major part of shopping center trends discussions. So will health and wellness when you’re in California. Then there is the one constant that is ever present no matter what: change.

Consumers tend to love it or hate it, depending on what the concept is, just how far out of the box it can take them and whether or not it’s social media worthy.

With the state being a hotbed for nationwide trends, landlords have certainly gotten a sense of what’s working, what has potential and what may be expanding.

“People are always on the lookout for their next social experience,” Rosen says. “They want opportunities to engage with friends and family — something savvy shopping centers can help them do.”

Centennial has assisted in these measures by opening American Ninja Warrior Adventure Park and Round1 Bowling & Arcade at MainPlace Center in Santa Ana.

Sandy Sigal, president and CEO of NewMark Merrill Companies, is also big on physical entertainment. He notes some of today’s hottest tenants within that category incorporate pickleball, bowling and go-carts. Sigal also believes arcades like Dave & Buster’s are here to stay.

When it comes to California, though, Sigal has his eye on another trend. One that tends to go hand in hand with the state’s health and wellness focus. Because if there’s one thing Californians love more than themselves, it may be their pets.

“We have added and seen the growth in pet hotels, as well as social concepts around pets,” he says. “Today, we are looking at not one, but two pet concepts going in next to each other. One is a place where ‘parents’ can leave their dogs while they go to work. Another concept is where, at the end of the day, they can have a drink and happy hour with other pet owners while their dogs play.”

When it comes to novelty, Veverka also loves the idea of relying on something familiar, but seeing it in a new way.

“Innovative and new categories that we are exploring are entertainment uses that are non-tech driven,” she says. “This can be nostalgic common area family games, performing arts, hosting live music or music performances, cultural events, and exhibitions to create a vibrant and engaging atmosphere for visitors.”

It can also mean working with established retailers on a specialty concept. Such was the case with Lululemon Athletica.

“This is not a traditional Lululemon retail store,” Veverka explains. “Our center, 2ND & PCH, was fortunate to offer an out-of-the-ordinary green space. It serves as Lululemon’s exclusive patio where the tenant hosts pop-up yoga classes and running group gatherings coordinated by the store. These offerings support the local fitness community. It’s quite impressive.”

The idea of creating more familiarity is behind another popular tenant trend, Rosen notes.

“Taking a play from Tesla, new and expanding retailers like electric vehicle and e-bike companies are using shopping centers as the basis for their roll-out strategies,” he says. “They’re adding showrooms in the shopping centers where their vast amounts of market research shows them their customers are already frequenting.”

To that end, Pacific City has welcomed VinFast, a Vietnamese electric vehicle showroom, and Rad Power Bikes, which operates the largest electric bike company in North America, to neighboring showrooms at Pacific City.

“To capture both mindshare and marketshare, shopping center owners and their leasing agents must be open to adding tenants with non-traditional uses to their centers,” Rosen says. “They need to go out into the market and look for unique tenants, including direct-to-consumer retailers, and convince them that opening a storefront at their center is the best way to reach their target market.”

Rosen adds that California can be an ideal place for transportation-focused showrooms as the weather and scenery lend themselves to the aspirational lifestyle.

“Rad Power Bikes offers guests an opportunity to test drive an e-bike along the world-famous Huntington Beach boardwalk before purchasing,” he explains. “Positioning themselves alongside best-in-class retailers in a location where their target customers already shop makes it easy for guests to drop into showrooms and have more casual conversations than are typical on showroom floors. Retailers that have found a meaningful way to engage with their customers and encourage interaction with their products will be big winners this year.”

These tenants can be an innovative, yet natural fit into the retail environment, but Ash notes that they may need some help.

“Vacant space and new opportunities for tenant growth are becoming more difficult to find as record-breaking absorption has swept through the market over the past couple of years,” he says. “As such, rents have increased significantly.”

It’s a tough market for many tenants, he notes — one that’s made even tougher on foreign/new-to-market tenants, as well as new small business owners.

“With these increased financial burdens, landlords need to focus on a prospective tenant experience and financial wherewithal to ensure that the business will be successful at the shopping center,” Ash continues. “Landlords will need to help any first-time users or franchisees understand the obligations and risks of opening a new business.”

Tenants, meanwhile, will have to remain patient.

“Remember, patience and persistence are key when space is scarce,” Sheehan says.

Article by Nellie Day for California Centers May/June 2024 Issue

Read the original article here: https://editions.mydigitalpublication.com/publication/?i=821552&p=16&view=issueViewer