El Segundo, CA
TEL: 424-297-1070 | URL: www.kosmont.com
MONTEREY COUNTY BUSINESS COUNCIL
PRESENTATION TO GONZALES
RETAIL MARKET ASSESSMENT
October 2024
Kosmont Retail NOW!®
KOSMONT COMPANIES |2
Kosmont Companies (“Kosmont”) has been retained to assist the Monterey County Business Council (“MCBC” or “Client”) in connection with a Retail Market Assessment (“Assessment”) utilizing its Kosmont Retail NOW!® platform.
Client would like to develop an understanding of the local economy, market conditions / trends, and the commercial / retail areas of King City, Soledad, Greenfield, and Gonzales (“Cities”) in the South Monterey County Region (“Region”), to inform plans for developing a comprehensive approach to retail amongst the four Cities. Main goals of the Assessment are to understand the local retail environment, increase local sales and transient occupancy taxes, and better meet the retail needs of the Region’s communities.
Kosmont is a nationally-recognized real estate and economics advisory firm serving hundreds of public and private sector clients for 38 years. Kosmont’s experience covers a range of services as follows:
Market and Feasibility Analyses
Fiscal Impact and Economic Benefit Studies
Economic Development Strategies and Implementation
Business/Retailer and Developer Recruitment
Identification of Funding Sources and Financing Strategies Public-Private Transaction Structuring and Negotiation Assistance
BACKGROUND
KOSMONT COMPANIES |3
EXECUTIVE SUMMARY
The Region and Cities have seen population growth in recent decades and are poised to see continuing population growth as housing development continues in the Cities. While the retail market in the Region is generally stable, the Region also faces retail competition from surrounding communities / shopping centers – particularly the strong regional retail cluster in Salinas.
While vacancy generally remains low, the Cities would like to improve retail tenancy in existing spaces (including spaces in existing shopping centers as well as older retail spaces in historic downtown main street areas) and would also like to stimulate additional retail development – particularly along the US-101 corridor – that can both serve local residents as well as attract visitors traveling through the Region.
The retail market is being shaped by modern consumer forces. Consumer need for convenience including omni-channel shopping options (i.e., e-commerce, buy online pick up in store (BOPIS), mobile technologies) and desire for curated / engaging retail experience is reshaping demand for brick-and-mortar retail, as well as driving new demand and redevelopment.
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EXECUTIVE SUMMARY (CONT’D)
Each City has key Opportunity Sites – such as existing shopping centers, downtown commercial areas, and undeveloped sites along the US-101 freeway – that have some potential for retail and hospitality development. These sites are unlikely to fully develop as retail projects due to the limited size of the trade area, but some retail development is likely suited. The Cities in the region should aim for flexibility with these sites, as successful projects will likely be mixed / blended use concepts that combine retail with high-demand uses such as residential and industrial. At this time, new retail developments are experiencing financial feasibility challenges, due to high land values (driven by residential and industrial demand), high construction costs, and relatively high interest rates.
Cities can explore tools to motivate private investment, which includes programs to encourage improvements at shopping centers to add retail viability (such as façade / landscaping / signage improvements), business expansion / attraction / retention and marketing exercises, and zoning strategies / regulatory flexibility to better facilitate an additional complementary blend of uses.
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REGIONAL ASSETS
COMMUNITY ASSETS THAT CAN BE LEVERAGED FOR ECONOMIC DEVELOPMENT Agricultural Natural Cultural
Farming / Agribusiness
Wine Country
Pinnacles National Park
Salinas River / Arroyo Seco
Historic Downtowns
Mission Soledad
Los Coches Adobe
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DEMOGRAPHIC, TAX REVENUE, AND EMPLOYMENT
DATA SUMMARY
The Region has a population of ~75,000 people and has grown ~30% since the early 2000s, with additional growth expected as new housing is developed.
Region has lower levels of bachelor degree attainment, higher Hispanic population, and lower average household incomes compared to County averages.
Household expenditure data shows that Households within the Region have average household incomes of ~$92,100 and spend ~$19,100 on key brick-and-mortar retail and service categories, equating to ~$311.7 million in annual spending in these categories.
Taxable Retail Sales data shows ~$331 million in taxable sales in 2023 from retail and food services; large business categories include Gasoline Stations, Food Service / Drinking Places, and Food / Beverage Stores. Over the past 5 years, growth has occurred in the Building Materials / Garden Equipment / Supplies Dealers, General Merchandise Stores, and Food Services / Drinking Places categories.
Property tax, sales tax, and transient occupancy tax growth has slightly outpaced County and State baselines since 2018. Region sees a net outflow of workers, with residents commuting to Salinas, San Jose, Monterey, and other communities. Major industry sectors in the Region include Agriculture, Public Administration, Educational Services, and Healthcare / Social Assistance.
Recent / upcoming development projects in the Region include a variety of residential projects that are likely to add over 6,000 housing units over the coming years; other commercial and hotel development is expected in the near future as well, with several projects in the planning phase – demonstrating continued market interest in the Region.
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RETAIL MARKET OVERVIEW
Gonzales Region
Population 8,500 74,600
Households 2,030 16,320
Median Age 29.4 29.7
Bach. Degree + 7.4% 9.6%
Average HH Income $97,400 $92,100
Retail Data
Inventory SF 216,600 1,389,000
Vacant SF 0 23,799
Vacant % 0% 1.7%
Market Rent $23.39 $22.72
Net Absorption SF (12mo) 2,200 6,600
Inventory Growth SF
(since 2018) 0% 65,4504.9%
Source: CoStar, ESRI, Placer.ai (Accessed July / August 2024) ▪ Approx. 1.4 million square feet of retail inventory in the Region, with a fairly low vacancy rate of 1.7%.
▪ Annual market rents ~$23 per square foot (increasing ~8.2% over the past three years).
▪ Inventory has grown ~65,500 SF since 2019 and is currently seeing slightly positive net absorption. No retail construction currently underway in the Region.
▪ A significant share of retail inventory is located in neighborhood and strip centers that generally serve the local market (grocery, restaurants, shops and services). Major retail tenants include several supermarkets, hardware stores, drug stores, dollar / variety / thrift stores, automotive supplies, and restaurants.
▪ Mobile visitor data shows that US-101 sees significant daily traffic, with peaks during commute hours and weekends, offering potential for capturing traveler spending. Local shopping centers show stable visitation, with anchor retailers performing at or near average levels.
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STRENGTHS, WEAKNESSES, OPPORTUNITIES, THREATS
Strengths Weaknesses Opportunities Threats
Strategic Location
Market Voids
Proximity to
Attractions
Community Character
Small Market Size
Competition From
Larger Cities
Infrastructure
Development Costs
Property Owners
Retail Development
Tourism Growth
Public-Private
Partnerships
Regulatory Flexibility
Economic Fluctuations
E-commerce
Competition
Retailer Expansion
Criteria
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ECONOMIC CHALLENGES:
RETAIL DEVELOPMENT FEASIBILITY
The commercial real estate market – particularly
the retail and office markets – is facing a number of
significant challenges due to economic, financial and
market conditions:
Inflation and construction costs
Interest rates are relatively high and financial
markets are responding
E-commerce
Work-from-home
Source: FRED, CA Dept. of General Services
0%
10%
20%
30%
40%
50%
60%
70%
80%
2012201320142015201620172018201920202021202220232024
Rising Costs: CPI-U and CA Construction Cost
Index, Change from 2012 Baseline
California Construction Cost Index CPI-U
KOSMONT COMPANIES |10
COMPETITION
CHALLENGES:
THE BARBELL
EFFECT
Salinas Retail
Cluster
The Region is flanked by
major retail clusters; this
presents a competitive
challenge to retail
development in the Region.
Monterey /
Sand City
Retail Clusters
Paso Robles
Retail Cluster
Source: Placer.ai, CoStar
Note: Cluster data only representative of select
shopping center areas and not all retail properties
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CHALLENGES & OPPORTUNITIES
POPULATION – MARKET SIZE & HOUSING DEVELOPMENT
Challenge
The region’s small, rural market size limits the potential for substantial retail development, despite 30% population growth over the past 25 years.
Opportunity Significant housing projects in the pipeline can drive further population growth, which in turn can support local retail.
Recommendation
Encourage blended-use developments on large sites near US-101, incorporating residential units alongside retail space to maximize financial viability and meet future demand.
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CHALLENGES & OPPORTUNITIES
RETAIL LEAKAGE AND COMPETITIVE ENVIRONMENT
Challenge
Significant retail leakage occurs as local residents travel to larger retail clusters in Salinas for goods and services not available within the Region.
Opportunity There is potential to capture some of this leakage by attracting new retail development in underserved / expanding categories.
Recommendation
Conduct outreach to developers and retailers to explore opportunities for capturing this local spending, focusing on retail formats suitable for the Region’s market.
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CHALLENGES & OPPORTUNITIES
US-101 TRAVELERS & TOURISM
Challenge
Region sees local / regional / visitor traffic along US-101 corridor, but much of this traffic is related to commuter travel or visitors passing through.
Opportunity The region can capture more sales by developing freeway-adjacent retail and hospitality services that attract and cater to travelers.
Recommendation
Focus on marketing / events that draw tourists to local destinations and local retail districts, while also leveraging freeway-adjacent opportunity sites for traveler-oriented retail development.
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RETAIL TENANT PRIORITIES
Potential commercial developers / tenants have a variety of factors that they prioritize when evaluating new development projects:
▪ Demand / Trade Area Thresholds
▪ Anchor Tenants
▪ Traffic / Visibility
▪ Site Accessibility / Circulation
▪ Consumer Convenience
▪ Competitive Retail Rates
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GONZALES
OPPORTUNITY OVERVIEW
Downtown Gonzales is a walkable, historic downtown area with charming character and local restaurants / shops, with some opportunity for enhanced activity through streetscape / façade improvements and business enhancement.
Southern Onramp Site is a large vacant site with very good accessibility / visibility from the US-101 freeway, and as housing / commercial development continues in the surrounding area may be well suited for blended use project that includes commercial (travel center, freeway-oriented retail), hotel, and residential. Vacant Commercial Buildings are older structures located in the mixed-use commercial core. Re-tenanting may be
challenging given the age / condition of structures, but the vacant spaces could be used to introduce new retail / dining options or be opportunities for redevelopment.
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IMPLEMENTATION TOOLS & STRATEGIES
Communities can use a variety of strategies and tools to support existing businesses and attract new development:
Business Expansion, Attraction, and Retention Activities Programs and Policies to Support Local Businesses
Property Owner Collaboration & Project Shaping
Infrastructure Improvements
Building Partnerships and Outreach
Events & Activities
Marketing
Community Engagement
El Segundo, CA
TEL: 424-297-1070 | URL: www.kosmont.com
MONTEREY COUNTY BUSINESS COUNCIL
PRESENTATION TO GONZALES
RETAIL MARKET ASSESSMENT
October 2024
Kosmont Retail NOW!®