Market Report_Q2 2022 Retail

JKG

2Q

RETAIL

MARKET REPORT MARKET OVERVIEW

Gallelli Real Estate 3005 Douglas Blvd #200 Roseville, CA 95661 P 916 784 2700 www.GallelliRE.com

The close of the second quarter showcased a trend that the Sacramento retail market, if not nationally, may start to see in the later part of the year – the market is still healthy, but starting to cool. As factors such as gas prices, inflation and rising interest rates affect the strength of the economy, so far the affects have been minimal, but economists fear the worst is yet to come. The vacancy rate rose to 7.8%, up from 7.4% last quarter. Leasing activity stayed active in areas such as quick service restaurants, health and fitness and some new grocers within the Sacramento region.

Overall, as the greater economy is likely to continue to soften, we anticipate the Sacramento region’s retail market to follow suit, but remain generally healthy.

*Quarter Over Quarter Change

7.8% Vacancy Rate

±(

152,085) SF Net Absorption

$18.95 Avg. Asking Rate (NNN)

MARKET TRENDS In recent months, the Sacramento retail market has begun to steady as vacancy increased from 7.4% in Q1 to 7.8% in Q2.

Clearly not a significant change as the market continues to remain healthy overall in terms of demand and occupancy rates. Net absorption took a dip into the negatives from 340,023 SF at the close of Q1 to (152,085) at the close of Q2, pushing the annual overall number to (172,948), a negative statistic for the year so far.

While economic factors play a large role in these outcomes, strong June retail sales was a positive indication of consumer confidence and somewhat unexpected news to many. That said, inflation remains untamed and will likely be reflected in consumer demand as we move into the second half of the year.

Recently, the Sacramento region has seen most demand from quick service restaurants with the likes of Chipolte, Mendocino Farms and Local Kitchens all seeking growth in the region.

Second generation restaurant space has also been hard to come by and when inventory comes available, tenants are quick to submit proposals. Health and fitness tenants continue to be active as well; LA Fitness operating as City Sports is seeking locations, Chuze Fitness and F45 among other boutique small format concepts growing in the market. As the pandemic hopefully comes to an end, there has been a desire for people to get back into gyms and resume normal life.

Vacancy Rate (%)

Net Absorption & Net Deliveries (SF)

RETAIL NET ABSORPTION VS. NET DELIVERIES VS. VACANCY RATE

Source: CoStar

Grocery tenants such as Nugget Market, Safeway and Raley’s have also been whispering of expansions within the Sacramento area.

Raley’s ONE recently opened at the new Plaza at Blue Oaks center in Roseville. Bob’s Discount Furniture has also been active in the market with their new Elk Grove and Folsom locations.

While new construction has been a challenge with hardships such as supply chain issues, lack of labor and high material costs there has been some success. Q2 wrapped up with the Highway 50 submarket showing 92,571 SF under construction. The new Stone Creek Village is a Sprouts anchored center slated to open in October 2022. The 34,000 SF center is also occupied by Pacific Dental, a gas station and coffee user. The project is adjacent to 150 planned multifamily units and 128 planned single-family lots.

Overall, the Sacramento retail market currently remains strong, but there appears to be an increased caution in the market as we enter the second half of the year.

±

221,517 SF Under Construction

4.3%

3.6%

Sacramento Unemployment

United States Unemployment

Ross (San Juan Ave & Greenback Lane, Citrus Heights)

RETAIL MARKET SALES While talk of a recession looms, landlords have been more apt to sell their shopping centers, attempting to get ahead of likely rising cap rates due to rising interest rates and a softening economy.

In Q2 alone, the Sacramento region saw $419 million in sales volume. The following centers make up some of that figure.

• Capital Village - $36 M • Antelope Marketplace - $33 M • Rocklin West - $26 M • At Home at Delta Shores - $21.65 M • Westbridge Plaza - $12 M • Southport Town Center - $11.7 M • Ross (San Juan & Greenback, Citrus Heights) - $8.4 M

Antelope Marketplace

RETAIL INVESTMENT SALES VOLUME VS. PRICE/SF $450,000,000

$350

$400,000,000

$300 $250

$300,000,000 $250,000,000

$200

$200,000,000

$150

$150,000,000

Price/SF ($)

Sales Volume ($)

$350,000,000

$100

$100,000,000 $50

$50,000,000 $0

$0 2022 Q2

2022 Q1

2021 Q4

2021 Q3

Price/SF

2021 Q2

2021 Q1

2020 Q4

2020 Q3

2020 Q2

2020 Q1

2019 Q4

2019 Q3

2019 Q2

2019 Q1

Sales Volume

Source: CoStar

We anticipate the remainder of the year will see more retail centers coming available to buy.

RETAIL Q22022 JKG

Retail Market Statistics

(Submarket criteria based on: Retail in a Shopping Center. Includes existing, proposed, under construction, final planning)

Available Space

Net Absorption Q2-21

SF Under Construction

Avg. Asking Rate (NNN)*

Direct

Sublease

Total

Vacancy Q1-22

7,096,626

993,079

6,792

999,871

14.1%

(106,454)

(187,770)

-

$16.20

3,111,603

109,800

8,278

118,078

3.8%

8,550

(1,750)

-

$17.64

7,771,377

768,375

4,705

773,080

9.9%

21,277

(38,920)

-

$15.00

3,280,512

252,222

-

252,222

7.7%

26,448

1,658

50,000

$14.88

1,590,856

101,025

20,050

121,075

7.6%

(25,687)

10,512

-

$31.56

El Dorado

2,474,983

177,410

-

177,410

7.2%

(1,312)

11,246

-

$23.64

Elk Grove

4,725,392

117,021

-

117,021

2.5%

42,022

6,029

5,928

$21.84

Folsom

4,440,538

277,602

-

277,602

6.3%

8,393

(375)

-

$20.16

Highway 50

3,460,166

485,427

-

485,427

14.0%

4,430

(16,101)

92,571

$16.20

Natomas

3,067,315

115,464

-

115,464

3.8%

1,335

3,541

-

$20.64

2,898,678

194,322

-

194,322

6.7%

6,079

(20,522)

-

$15.36

Roseville/Rocklin

11,573,926

681,725

22,671

704,396

6.1%

(51,090)

6,644

38,300

$18.84

South Sacramento

8,486,387

557,388

127,135

684,523

8.1%

(67,741)

43,251

34,718

$15.36

West Sacramento

1,841,887

106,085

-

106,085

5.8%

(18,335)

9,609

-

$18.00

Totals

65,820,246

4,936,945

189,631

5,126,576

7.8%

(152,085)

(172,948)

221,517

$18.95

Submarket

Inventory

Arden/Watt/Howe Auburn/Lincoln/ Loomis

Q2-22

Carmichael/Citrus Heights/Fair Oaks/ Orangevale Davis/Woodland Downtown/Midtown/ East Sacramento

Rio Linda/ North Highlands

About Gallelli Real Estate Gallelli Real Estate is a private firm that specializes in commercial real estate services and property management. We believe that as a boutique firm whose understanding of the business runs as deep as our core values, our advantage is large. We take pride in our unique approach to offer more individual solutions that address the ever changing needs of our clients and the industry. After all, our success is measured by the success of our clients and the strength and longevity of our relationships. For the latest news from Gallelli Real Estate, visit GallelliRE.com, or follow us on Twitter: @Gallelli_RE and LinkedIn.

Gary Gallelli President 916 784 2700 gary@GallelliRE.com

Gallelli Real Estate 3005 Douglas Blvd #200 Roseville, CA 95661 P 916 784 2700