Higher rents could lead to new issues for local retailers
By Jim Shilander
Rents are going up on Avenida Del Mar, which means good news for landlords, and perhaps good news for the local economy. But business owners might disagree, as higher rents may stifle retailers, even as the focus of the downtown economy has moved away from them.
Are rising rents a sign of recovery from a slowed economy, when landlords were felt forced to lower their prices to keep spaces occupied and businesses afloat? Will higher prices have a negative effect on new business as storefronts begin to fill up once more? Those questions, as well as the question of whether additional parking will be necessitated by the rapid development of new dining options on Del Mar in the last two decades are facing local landlords and retailers in the coming years.
James Wynne, a commercial realtor at Johnston-Pacific, said that the market on Del Mar is tight at the moment, in terms of vacancies. Only one rental property is currently on the market, the empty storefront adjacent to Rocket Fizz at 105 Avenida Del Mar.
Wynne said that in a recovering market, there were pressures being felt by both renters and landlords. For landlords, it was an issue of getting the best possible value for the property, which could put pressure on tenants, particularly those that might have been on rates that were less than market rate.
“Even if you own the property free and clear, you’re going to try and get the best deal you can,” Wynne said.
What exacerbates that issue is that there were a large number of property owners on Del Mar, rather than a single owner or a few owners, who might be able to provide a single consistent rental rate.
“At a shopping mall, for example, you have one owner, which means consistent rent,” Wynne said.
Just before the commercial real estate tumbled, Wynne said, real estate on Del Mar was selling for as much as $1,000 a foot—as was the case with 176 Avenida Del Mar, bought by Jack’s Surfboard for a planned expansion. The original plan for that space was for a wholesale renovation, Wynne explained, but the fall of the market had changed those plans. The store in the location now is a scaled back version of the original plans for the facility. As an illustration of the state of the market today, the last commercial space to sell on Del Mar sold in 2011 for $350 a foot (Geno’s Jewelers), Wynne reported.
Randy Griffin, whose family owns several properties on Avenida Del Mar, said the economy forced many property owners, including his family, to make rental agreements that reflected down times.
“We were forced to try and reduce our rent to make it possible for businesses to remain viable,” Griffin said. “But we’ve had a lot more inquiries in the last year or six months. There’s some really good opportunities for all of us.”
Griffin noted, however, that this also meant some potential problems for tenants, who may have become used to the lower rent levels.
One Del Mar tenant told the SC Times that she was moving her business to another area of the city after seeing her rent double from the previous level earlier this year.
“None of us like to see our costs grow,” Griffin said. “I absolutely understand that.
Michael Kaupp, the President of the Downtown Business Association and owner of Stanford Court Antiques, said that as a business and downtown property owner (he owns a building on Del Mar housing three other businesses as well as his own building), he sees both sides of the issue.
“There’s no one-size-fits all for landlords and how they do business,” Kaupp said.
As much as anything else, rent on Del Mar might be affected by when the property owner bought as much as the success of the stores inside, he explained. Property owners who bought at the top of the market, several years ago, would likely face mounting debt service on that purchase every month—which could force higher rent for those tenants, even in leaner periods. For those who purchased property years or even decades previous, he said, it was a different story.
“People who’ve had their property for decades have the luxury of basically charging whatever rent they want,” Kaupp said. That usually meant charging minimal rents for tenants. His own rents, he said “were on the low side,” for the most part.
Wynne agreed, too, that long-term property owners were freer to charge what they wanted. Property taxes were generally lower on older buildings, he said, which also mean that some of the “common area maintenance charges” for tenants, which are factored into the total cost of rent.
As a retailer on Del Mar, Kaupp said he understood the concerns that shop owners might have, in terms of the prospect of higher rates. However, he noted that a number of the buildings on Del Mar were aging, which meant owners would need to factor into their consideration when establishing rents. A new roof or a new sewer line, he said might not be affordable on 10 or 20 cents per square foot in rent.
“With some our historic buildings, it’s a love-hate relationship,” Kaupp said. “Owning property is a business, just like the retail business, you have to set aside money for what might happen.”
But for those worried that higher rents might usher in a new Del Mar full of national chains shouldn’t worry, Kaupp said.
“No, not even close, for a number of reasons” he said. “We don’t have the footprint to accommodate national chains.” Such chains, he said, typically required sites almost twice what many Del Mar establishments had. “It’s never going to happen, even if the economy said it could.”
Kaupp said the priority for the DBA this year will be improvements to the parking situation on and off Avenida Del Mar.
“I think we’ve reached a tipping point,” Kaupp explained. “Not only is there not enough parking, but the parking resources are substandard.” Kaupp said city efforts to improve alley parking access in alleys in the area, potentially modeling the efforts of Laguna Beach in the same area.
The primary concern about parking now, Kaupp said, is that downtown San Clemente’s focus had changed from being primarily retail focused to one focused on entertainment and dining. Parking for dining establishments is necessarily more intense than for retail, he said, since restaurants usually seat many people at one time. Many of the parking regulations for dining, he noted, were put in place for dining establishments that regularly only drew 50 people a night, as opposed to the multiple seatings for eateries that now bring in 250 people a night.
Wynne said the current vacant spot on Del Mar was being kept space vacant due to an inability to put in a preferred use, which had to do with parking.
“There’s been a lot of interest for something like a restaurant or a beauty salon,” Wynne explained.
However, because the space had no parking assigned to it, Wynne reported that the city had indicated it preferred a pure retail establishment instead.
Kaupp said the current lack of parking can lead to some uncomfortable parking issues, especially as people begin to park further and further away from their target stops, leading to potentially treacherous or lengthy walks, especially at night.
“I’m not sure, if I were a woman, that I’d want to park in some of those spots,” he said.
The city’s downtown revitalization program has aided 59 businesses in the past eight years in helping to fix up building through grant funds.
City Council member Jim Evert said the city was already working to move private parking areas to public use.
“We’ve been able to add a number of parking spots that way,” Evert said.
The city was also considering metering downtown, though Evert acknowledged that business owners were not necessarily fans of that idea. Metering would primarily be concerned with freeing up spots currently being utilized by employees, Evert said. There were no immediate plans to add a parking structure, he said, though one had been considered at the San Clemente Community Center.