La Jolla, Del Mar: Rebounding retail markets face their own challenges
By Joe Tash
Positive signs are evident in both the La Jolla and Del Mar central business districts, although the two villages are still feeling the effects of the 2008 recession.
In La Jolla, the vacancy rate among restaurant, office and retail buildings is down from a year ago, said veteran commercial brokers familiar with the village, although advertisements for vacancies still adorn windows on many blocks.
Meanwhile, to the north in Del Mar, sales tax revenue is up — as it is in La Jolla — and occupancy of retail storefronts appears to be relatively stable.
Interviews with business leaders, brokers, property owners and city officials paint a picture of two central business districts whose prospects appear to be improving, even as each faces unique challenges on the road to economic growth.
“I’m very optimistic. Just in the last four or five months, activity has really picked up. What’s happening is people are repositioning themselves for the future, and optimistic that things are going to get better and the worst is behind,” said Mike Slattery, a commercial broker with Cassidy Turley BRE Commercial, who specializes in the La Jolla Village market.
More than meets the eye
Slattery said appearances can be deceiving when it comes to the economic health of the Village. For example, he said, some properties have been leased, but the retail or office businesses have not opened yet for a variety of reasons. He said he is encouraged by the number of contacts he receives from businesses wanting to locate in La Jolla and the relatively small number of vacancies available to them.
“La Jolla is still in my opinion a very strong and viable market,” Slattery said.
Phil Wise, senior vice president with Colliers International, produces a quarterly report on vacancies in La Jolla’s downtown area.
“The vacancies have gone down quite a bit — the market’s good,” said Wise.
As of the second quarter of 2011, which ended June 30, the total retail square footage in the Village was 1,375,642, with a total vacancy of 98,963 square feet, or 7.19 percent.
New in La Jolla
Among recent additions to the La Jolla restaurant and retail scene are the Eddie V’s restaurant on Prospect Street and Panera Bread at Girard Avenue and Wall Street, in the building that formerly housed Jack’s restaurant. The majority of the Jack’s building, where a replacement nightclub and restaurant had been planned, still stands vacant, however.
Around the corner from Panera, on Herschel Avenue, a major restaurant has signed a lease for a building that has stood vacant for 30 years, said Wise. The building on Herschel Avenue near Wall Street long owned by the late Helen Smith.
Wise would not identify the restaurant, but various media reports, including one on Monday in the Union-Tribune confirm that it will be operated by Brian Malarkey — a Top Chef star who formerly owned Oceanaire — and Jim Brennan. The pair owns Searsucker downtown and recently opened Burlap in the Del Mar Highlands Town Center. Their new restaurant, set to open in the Spring, will focus on seafood and be called Herringbone.
And there are other good signs in the market with Westime, a Beverly Hills-based store that touts its focus on “extraordinary watches,” is set to open soon on Prospect St; Amici’s East Coast Pizzeria has leased the long-vacant site that was home to Panini’s and IHop; and WeOlive has met with a warm welcome.
Although vacancies are declining, rents remain below their peak in 2007-08, said Wise. He estimated that rents along Prospect Street, the Village’s main tourist corridor, are in the range of $4 to $6 per square foot per month, with some exceptions. In addition to their base rent, retail tenants also pay “triple net,” which covers such expenses as taxes, insurance and common-area maintenance.
Rents along Girard Avenue, range from $4.75 to $6 per square foot up to Silverado, to about $2.25 to $2.75 from Kline to Torrey Pines Road, Wise said.
Still a ways to go
La Jolla still has its work cut out for it, according to Phil Coller, president of the La Jolla Village Merchants Association, which formed earlier this year. The group represents 1,250 businesses in the Village and administers some $150,000 collected in fees each year through the La Jolla business improvement district.
The association recently received information from the San Diego Convention and Visitors Bureau that among similar upscale communities around the United States, La Jolla has recovered more slowly from the recession than other areas, Coller said.
“They all suffered the same and all recovered faster, except us,” said Coller, who owns Everett Stunz linens and bedding with his wife Nicki.
One challenge facing La Jolla, said Coller, is the appearance of the Village area. City of San Diego budget cuts have meant trees are no longer trimmed regularly, and many of the Village’s streetlights no longer work, although some slow progress is being made on that front. Potholes have gone unfilled and cracks in curbs and sidewalks have not been repaired.
Coller said he receives complaints about the village’s appearance from residents and merchants, and has been told visitors to La Jolla hotels have written similar comments in the hotels’ guestbooks.
Time for beautification
“The most important and immediate thing is to upgrade the infrastructure and beautify the Village,” Coller said.
Bob Collins, whose family owns the Best Western Inn by the Sea on Fay Avenue, and also a restaurant space that fronts on Prospect and other properties in the village, said overall, the market has been stable over the past year or two.
He said, however, that it does take more time to locate tenants than earlier in the decade, more time is lost to vacancy and more concessions must be made by landlords.
“It’s a beautiful place. It’s a place everybody wants to come back to or live in. I think that will sustain it well as the years go by,” Collins said.
One thing that detracts from the Village’s appearance, he said, is the proliferation of sandwich-board signs.
“We look a little rag-tag because we have all these illegal signs all over the place,” Collins said.
Lincoln Foster, president of A-440 Enterprises, Inc., which owns property on Prospect, had three suggestions for improving the Village retail scene: establishment of a “branded” hotel such as a Hilton or Sheraton; establishment of well-known, branded restaurants; and both live theater and movies in the downtown area.
“Carefully crafted, the economics could work” for a movie theater, he said, and such businesses would bring in traffic to the downtown area at night.
Del Mar pushes revitalization
With a central business district much smaller than its neighbor to the south — and a greater ability to control its destiny because it is an incorporated city — Del Mar is also working to improve its business prospects. The City Council recently voted to move ahead with creating a specific plan to guide the revitalization of the downtown business core, a six-block stretch which runs from 9th to 15th streets along Camino Del Mar. The plan must be approved by a public vote before it can be adopted.
Del Mar officials want to create a walkable village where visitors could park their car once and reach restaurants and shops on foot. Their plan is not as much about repairing streets and sidwalks as it is about changing how shoppers see and act in the retail neighborhood.
While Del Mar has suffered effects of the recession, currently there are few vacant storefronts, although there are more vacancies for office space, said Jen Grove, executive director of the Del Mar Village Association.
“This is not the year I’ve seen a ton of change — there hasn’t been a huge turnover,” Grove said. “I’m seeing reinvestment and people trying to get their buildings up to par, and I hope that will continue.”
Investing for the future
Between June 2010 and May 2011, businesses in the Del Mar village have invested $6 million into their properties, said Grove.
Another project, the conversion of the Stratford Inn at the south of the village into an Indigo Hotel and restaurant, is expected to begin in September at a cost of $6.6 million.
David Winkler, whose company developed Del Mar Plaza shopping center and later sold it, owns three buildings on the block south of 15th Street. He said the buildings have remained fully occupied through the recession.
The retail real estate market seems a bit stronger this year, Winkler said, but he expects the recovery to be slow and gradual. The highest rents in Del Mar’s central business district are at the north end, near 15th Street, he said, and rents decline for properties to the south.
According to Winkler, monthly retail rents in Del Mar range from up to $10 per square foot at the Plaza near 15th Street, to between $2.50 and $4 per square foot at the south end of the central district near 9th Street. Also added to the rents are costs for taxes, insurance and common-area maintenance. Rental rates are affected by location, tenant improvement allowances, free rent and other elements negotiated between landlords and tenants, Winkler said.
Del Mar’s central village includes 291,000 square feet of commercial space, including office, retail, restaurant and personal services, said Kathy Garcia, Del Mar’s planning and community development director. The figure does not include Del Mar Plaza, which has about 69,000 square feet of retail space, or the L’Auberge resort. Vacancy rates were not available.
The city’s sales tax revenue was up 11.9 percent — to $1.481 million — for the year that ended June 30, compared with the year before, said Garcia, with restaurants and miscellaneous retail showing the largest gains.
Sales tax generated by businesses within the La Jolla Business Improvement District, which roughly conforms with the village area, totaled $2,613,840 for the fiscal year that ended June 30, according to figures provided by San Diego Councilwoman Sherri Lightner’s office. That was up from the previous year, when sales tax revenue for the village totaled $2,384,619.
Del Mar will never match La Jolla or San Diego’s Seaport Village in the size and scale of their retail offerings, and that is not the city’s goal, said Garcia. Rather, Del Mar wants to revitalize its downtown village to serve both residents and visitors.
“I’m hoping the interest in our restaurants and the fact they’ve been successful will start to spark more retail to want to be co-located and play off that synergy,” Garcia said. “By the very nature of the size of our properties, they are going to stay small, we won’t have 20,000- or 50,000-square-foot retail buildings — they just don’t fit.”
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