Investors Flock to California as Retail Capital Hits Levels Not Seen in Years
Capital is rotating back into West Coast gateway markets as investors show renewed interest in California's major metropolitan areas, citing attractive demographics and entry points, following a period of pricing softening from peak levels.
Geoff Tranchina, retail investment sales lead in the Los Angeles office for JLL, told GlobeSt.com that investors are hyper-focused on supply-constrained markets that can support retail spending despite macro headwinds.
Institutional bid volumes are up over 300% from the first half of 2024, with both existing and new retail investors creating downward pressure on cap rates for core assets.
“Debt and equity capital availability for retail—especially grocery-anchored and necessity-based assets—is at levels not seen in years, with retail spread differentials versus industrial at their lowest since 2017,” according to Tranchina.
One example is a recent three-year, $27 million construction loan secured for retail development in Rocklin, Calif., by borrower Blue Coast Capital with U.S. Bank. The 49,200-square-foot neighborhood center, which is shadow-anchored by popular regional grocer Nugget Markets at Whitney Ranch Retail Center, had its financing efforts led by JLL.
With a completion date of next year, the Whitney will feature 35,000 square feet of in-line and standalone retail space, as well as five ground-leased pad sites totaling 17,200 square feet, to accommodate highly desirable national and locally based tenants. Located at the SW corner of Whitney Ranch Parkway and University Avenue intersection in Rocklin, approximately 22 miles northeast of Sacramento. The area within a one-mile radius has seen its population grow by 145% since 2010.
This new demographic is in an area that Money Magazine recently recognized as one of the Top 50 Best Places to Live in the US, comprising a highly affluent population with average household incomes of $200,000 and median home values of $900,000.
Nugget Markets is one example of an upscale supermarket chain that can appeal to the growing demographic of shoppers looking for what progressive grocer recently identified as “cheap premium” products, such as middle-priced yogurt, natural snacks, frozen or specialty beverages.
Overall, leasing looks strong at Whitney. It is in lease or letter-of-intent (LOI) negotiation with multiple local, regional and national tenants for all the ground lease pads, accounting for more than 60% of the NRA of the shop space. There is a strong interest in filling the remaining vacancy, according to JLL.
Source: GlobeSt/ALM