Seismic Shifts in Retail Space Reflect Changing Needs

It’s no surprise to anyone that the “Amazon-ization” of America has been putting pressure on retailers, from big box stores such as Wal-Mart, to long-lived retail brands such as JC Penney and Sears. Americans have embraced the online shopping experience, pumping billions of dollars into purchases in 2018.

The most popular categories for online purchase are clothing, shoes, and consumer electronics. The US Department of Commerce, according to Digital Commerce 360, estimates that over $517 billion dollars were spent online, which represents a 15% increase from the year before. While this represents only about 9% of total retail sales (which includes automobiles, restaurant, and fuel expenditures), the share of online sales is growing faster than the total retail sales.

According to CoStar data analysts, the upward trend of online purchasing has netted the expected results. Square footage demand by apparel retailers has shrunk considerably since 2007, while the dial has barely moved on general retail space leasing.

By contrast, leasing demand for necessity-based retailers and experiential retailers are up significantly. These categories include retail shopping needs that are not easily fulfilled online – health services such as gyms and workout studios, high-end entertainment venues, beauty services, restaurants, food stores, etc.

What does this mean for the Silicon Valley area? Well, the primary driver of commercial leasing in San Jose and the surrounding areas is office and R&D space, not retail. However, the population continues to increase as Silicon Valley continues to attract tech sector jobs.

Google alone could impact the daytime population of San Jose, to the tune of a 50% increase, once the transit village plans are complete, which includes 8.5 million sq feet of prime office space, over 9,000 homes (25% of which will be affordable housing), and a plethora of retail, restaurant, and mixed use space around the proposed village. This will mean an increased need for the right mix of necessity and experiential retail services to meet the need of a growing population. With the right business plan, marketing, and location, there will be ample appetite for retail services near the Diridon train station.

Keystone Commercial Brokerage serves the needs of commercial real estate investors in the Santa Clara and San Mateo counties, specializing in commercial property, multi-unit residential, office space, and multi-use property. Paul Phangureh has over 16 years of experience in buying and selling in the Santa Clara and San Mateo County areas. Contact Paul at 650-924-2544, or email at [email protected]

Leave a Comment