The icy retail climate along the Highway 50 corridor east of Sacramento is slowly beginning to thaw, but an overabundance of standing inventory remains.
Folsom and El Dorado Hills are overbuilt for retail by 70 percent, says Ken Noack, Jr., vice president at Sacramento-based Cornish & Carey Commercial Newmark Knight Frank.
High vacancy rates are attributable to a strange combination of weak demand and lacking supply: When major national retailers, including Mervyn’s, Linen’s N Things and Borders, closed shop, they dumped a glut of space into the market. Compounding the void was a dearth of jobs and new houses. Consumers dropped like flies.
Today, the Highway 50 corridor has the highest retail vacancy rate by far of any area in the Capital Region: 17.6 percent as of the year’s first quarter. The Roseville/Rocklin market follows with a retail vacancy rate of 12.4 percent.
Several centers on the Highway 50 corridor have occupancy rates hovering near 80 percent, and one, the Palladio at Broadstone, is just at 60 percent. But there are indications that business is slowly catching up to the false economy that peaked with the housing bubble in 2005 and then began correcting as the market began its nosedive in 2006.
Things are slowly improving, say marketers, politicians and brokers in the area, and as they do, a slight cross-county push and pull for customers and their tax dollars is being felt.
“Folsom is drawing our population base, our tax revenue,” says Ray Nutting, chairman of the El Dorado County board of supervisors. This perceived leak of tax dollars is driving county leaders to consider ways to keep retail shoppers in the county, including by building infrastructure to facilitate traffic flow and luring bigger retailers by streamlining the environmental impact review process.
Other experts don’t see direct competition. Evert Palmer, city manager of Folsom, says things are looking up for everybody.
Four retail centers along an eight-mile stretch of the corridor give some insight into where things have been and where they’re going for the retail market in the hard-hit region.
El Dorado Hills
size: 750,000 square feet
year built: 2002
Houses on a sloping ridgeline are the first thing you see when approaching El Dorado Hills from the west, just a mile east of Folsom. They overlook the El Dorado Town Center, nestled in a low point just south off Highway 50.
Opened in 2003, El Dorado Hills Town Center was masterminded by developer Tony Mansour to be the hub of the community. On a 100-acre expanse sits 750,000 square feet of office and retail space, 350,000 of which Mansour and his eponymous development company still own and manage.
A 15-screen theater and a Target store anchor the development, which is about 80 percent leased, says Mansour. Turnover has been a problem, but the leasing office has received more interest so far this year than it did in all of 2010 and 2011 combined, Mansour says, leading to the expectation of high occupancy in the next 12 to 18 months.
“It took a while, but it’s getting there,” Mansour says.
El Dorado Hills businessman Kevin Nagle, who runs the billion-dollar, El Dorado Hills-based Envision Pharmaceutical Services, invested with the center and became an equal partner in October 2011.
Nagle would help provide a new perspective and energy as the center focuses on increasing occupancy.
Though the upscale Palladio at Broadstone retail complex in Folsom sits about a mile west, Mansour believes the two retail centers complement each other. Palladio caters to large, national retailers such as Whole Foods and H&M, while Town Center focuses on entertainment, food and financial services, he says.
MontaÃ?o De El Dorado
size: 35,700 square feet (phase 1)
year built: 2008
Just a few blocks south of El Dorado Town Center stands 35,700-square-foot MontaÃ±o De El Dorado. A second phase for the center, business willing, would be a 120,000-square-foot addition.
On a recent Saturday night, the place was humming. Kinnee O’Reilly’s Irish Pub was packed. Nearby Relish Burger Bar was full as customers listened to a live band rocking old tunes in the long evening light.
This scene is all part of the plan, says Matt Harmon, a broker with the center. During the day, a large pottery shop, upscale salon, women’s clothing boutique and an olive oil shop hold court, among others. The center is about 80 percent filled, Harmon says, and it has been tough getting there.
“We’re all just waiting on the economy,” Harmon says. “It’s brutal.”
The center had a very low occupancy rate for its first year and a half, but things are picking up. A 4,000-square-foot U.S. Bank is under construction, and the county has plans to widen and expand White Rock Road off Highway 50 into a main thoroughfare.
The road, and plans for nearby El Dorado Hills expansion, could bring a lot more business — and retail.
size: 300,000 square feet
year opened: 1990
Opened in 1990, Folsom Premium Outlets, owned and operated by the national mall operator Simon, enjoys 99 percent occupancy. As an outlet center, it competes for different retailers than many centers in the region.
The outlets, a cluster of low-slung buildings, has about 80 stores ranging from Saks Fifth Avenue Off 5th and DKNY to Calvin Klein, Levi’s and Banana Republic.
As an older development, the outlet center, unlike its retail neighbors, didn’t debut during a time of turmoil, and its occupancy rate reflects that. However, as leases expire, Highway 50’s newer retail properties and their growing populations could attract some longtime tenants.
Palladio at Broadstone
size: 750,000 square feet
year built: 2009
The upscale retail center Palladio at Broadstone in Folsom, just about a mile west of El Dorado Hills Town Center on Highway 50, is beginning to see a critical mass of national retailers, says general manager Gloria Wright.
“Things are very active now,” she says, though it has been a slow start, with vacancy hovering near 60 percent for about a year.
The 45,645-square-foot Sports Authority store, scheduled to open this month, was the region’s largest retail lease secured in the year’s first quarter.
“It’s a tough story for retail of any type,” says Folsom City Manager Evert Palmer.
After a 16-screen movie theater opened in 2009, the Palladio development started its retail life in the fall of 2011 with the opening of Whole Foods Market. H&M is scheduled to open this fall, and Toby Keith’s I Love This Bar and Grill — which expects to employ 200 people — opened in June.
The Palladio should be 70 percent occupied by the holidays, says Scott Reynolds, a retail broker for the center. As deals are finalizing, he expects the center to add 100,000 square feet of leased space by gift season.
Calls are picking up, too. Since the new year, Reynolds says he has received an average of eight or nine calls a week, up from just two to three a week last year.
The center is shaping up as a shopping destination, even for Sacramento residents, says Reynolds. East Sacramento shoppers, for example, are just a 25-minute drive away. Reynolds says he expects the new Palladio to compete with Roseville’s Westfield Galleria along Highway 80 to the north as a regional attraction of moviegoers, clothing shoppers and Whole Foods lovers.
Chops, a popular Sacramento steak house, recently opened its second location at the center with a soft launch. Trisha Flynn, who owns and manages the restaurant with her husband, says they plan to open for lunch soon and offer breakfast on the weekends down the road.
More reason for Palladio’s optimism: Being just across Highway 50 from the 3,000 acres recently annexed by Folsom, it is positioning itself to be that area’s “downtown” center.
For more information on Mike Graff: mikegraff.co/
John Frisch, 61, is regional managing director for Cornish & Carey Commercial Newmark Knight Frank. He is also the immediate past chair of the Sacramento Metro Chamber board of directors.
A drive past a neglected home in Natomas or a shuttered Mervyn’s in Roseville is more than a sign of the strained Capital Region economy. It is also an expensive risk that can hit property owners at the knees.