City of San Ramon. Retail Analysis Report. January 27, bae urban economics

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1 City of San Ramon Retail Analysis Report January 27, 2017 bae urban economics

2 Table of Contents EXECUTIVE SUMMARY... I Overall Findings... i Demographics and Economy... i Real Estate Market Trends... ii Key Retail Concepts and Trends... iv Existing Retail Centers... vi Sales Leakage and Supportable Square Feet... vii Void Analysis... ix Mixed Use Inventory... ix Recommendations and Next Steps... x 1. INTRODUCTION AND BACKGROUND... 1 Overall Goal of the Study... 1 Policy Background and Prior Studies... 1 Prior Reports... 3 Approach and Methodology... 3 Key Questions DEMOGRAPHIC AND ECONOMIC OVERVIEW... 5 Data Sources... 5 Definition of Retail Market Area... 5 Population and Household Trends... 7 Age Distribution... 9 Race and Ethnicity Housing Characteristics Income, Education, and Occupation Commute Flows Economic Base and Employment Trends Major Employers Worker Income Projections... 20

3 3. REAL ESTATE MARKET TRENDS Residential Real Estate For-Sale Residential Rental Residential Retail Real Estate Market Overview Office Market Overview EXISTING RETAIL CENTERS Retail Shopping Center Profiles Summary Evaluation of Existing Retail Centers Impact of City Center on Existing Retail RETAIL TRENDS Key Retail Concepts and Trends Implications of Retail Trends for San Ramon SALES AND LEAKAGE ANALYSIS & SUPPORTABLE SQUARE FEET Sales and Leakage Analysis Supportable Retail Development RETAIL VOID ANALYSIS MIXED USE INVENTORY Mixed Use Sites FINDINGS AND RECOMMENDATIONS Overall Findings SWOT Analysis Recommendations and Next Steps APPENDIX A: PLANNED & PROPOSED DEVELOPMENT, MARKET AREA, 12/ APPENDIX B: LEAKAGE AND SUPPORTABLE SQUARE FOOTAGE ANALYSIS DETAIL

4 List of Figures Figure 1: Map of San Ramon Market Area... 6 Figure 2: Household Composition, Figure 3: Households with Children Under 18, Figure 4: Age Distribution, Figure 5: Race and Ethnicity, Figure 6: Asian Alone by Selected Groups, Figure 7: Household Tenure, Figure 8: Age of Housing Stock, Figure 9: Employed Residents by Occupation, Figure 10: Median Annual Worker Earnings, Figure 11: Residential Units Permitted by Building Type, Figure 12: Median Single Family Home Sale Price, Figure 13: Median Condominium/Town Home Sale Price, Figure 14: San Ramon Rental Stock by Number of Bedrooms, 3rd Quarter 2016 (a) Figure 15: Average Monthly Rent and Vacancy Trends, San Ramon, (a) Figure 16: Gross Leasable Retail Space per Resident, Figure 17: Annual Net Retail Absorption, San Ramon, Figure 18: Retail Asking Rent Trends, Q Figure 19: San Ramon Retail Vacancy Trends, Q Figure 20: Annual Net Office Absorption, San Ramon, Figure 21: Office Lease Rates & Vacancy Trends, San Ramon, 3rd Quarter Figure 22: San Ramon Retail Context Map Figure 23: San Ramon s Retail Gravity Figure 24: Commodity vs. Specialty Retail Figure 25: Examples of Lifestyle Centers Figure 26: Omnichannel Retail Figure 27: Examples of Active Uses Figure 28: Examples of Inactive Uses Figure 29: Per Capita Retail Sales Leakages by Major Retail Store Category Figure 30: Void Analysis Area Figure 31: San Ramon Retail SWOT Analysis

5 List of Tables Table 1: Demographic Trends, Table 2: Age Distribution, Table 3: Race and Ethnicity, Table 4: Housing Units by Type of Structure, Table 5: Household Income, Table 6: Educational Attainment, Population Age 25+, Table 7: Commute Flows (a) Table 8: Industry Employment Trends, Table 9: Major Employers in San Ramon, Table 10: City of San Ramon Population and Employment Projections, Table 11: Sale Price Distribution of Single-Family Residences by Number of Bedrooms, September 2015-October 2016 (a) Table 12: Sale Price Distribution of Condominiums by Number of Bedrooms, September October 2016 (a) Table 13: San Ramon Retail Inventory by Type, Table 14: Retail Market Overview, Third Quarter Table 15: San Ramon Office Building Inventory, Third Quarter Table 16: Tri-Valley Office Market Overview, Third Quarter Table 17: San Ramon Shopping Centers Summary Table 18: Total Estimated 2014 Retail Sales Table 19: Summary of Leakage Analysis Table 20: Supportable Square Feet, San Ramon Buildout Population Table 21: Retail Void Analysis Table 22: Mixed Use Opportunity Sites Table 23: Menu of Strategies and Action Revisions to Consider

6 EXECUTIVE SUMMARY Overall Findings San Ramon is an affluent community with an underdeveloped retail sector, resulting in a high level of retail purchases occurring outside the community. This leakage of sales is largely due to the attraction of shoppers to major regional and community shopping centers in nearby cities at major highway interchanges with high traffic counts. Despite significant leakage of retail sales, the City s high levels of educational attainment, high incomes, and professional workforce are all very positive indicators for retailers. However, other than the City Center development, San Ramon is disadvantaged by a lack of undeveloped sites at high-traffic-count locations suitable for new retail, particularly specialty retail. This means that new or reconfigured retail projects would face a higher economic feasibility threshold arising from the opportunity costs associated with repurposing sites with existing, income-producing improvements than would be typical for retail projects on greenfield sites. As part of the General Plan Update process, San Ramon should consider re-evaluating the maximum floor area ratios (FARs) provided to date for key opportunity sites. Reflecting the strength of spending power in the community, San Ramon s existing retail centers are largely at full occupancy. However, these centers cater to daily needs and offer few specialty retail shopping opportunities. In addition, many of these centers have a high proportion of tenants that are not retailers and generate few taxable retail sales. A policy question for the City to consider is whether to maintain these centers to preserve San Ramon s quality of life (since they reflect demand for services by residents and daytime workers) or to encourage repurposing of these centers to alternative uses such as residential that would generate additional spending power. In either case, San Ramon would need to reassess its maximum FAR standards as a tool to provide incentives for the desired outcome. Demographics and Economy Population and Population Growth. With a 2016 population of approximately 79,200 residents, San Ramon is a growing community with a significant concentration of highincome households. The City has experienced substantial population growth in recent years, adding more than 35,000 residents between 2000 and Household Composition. San Ramon has a relatively high proportion of homeowners and families with children, making it attractive to family-oriented retailers offering goods and services. Businesses such as youth apparel, sports equipment, home improvement, and home furnishings that cater to families are in high demand. i

7 Age Distribution. Although the City has a relatively low proportion of residents in the 18 to 24 age cohort, there has been a high rate of increase in this population segment in San Ramon and in the Market Area in recent years. Between 2010 and 2016, the number of people in the 18 to 24 age cohort (the millennials ) in San Ramon grew by 3,020 residents, or nearly 85 percent, making it the fastest growing age cohort in the City during this time. Race and Ethnicity. The rapid growth in persons of Asian descent since 2010 suggests that there may be increasing opportunities for San Ramon s retail sector to serve this population segment. Growth in the Asian population accounted for nearly all the population increase in San Ramon between 2010 and San Ramon s Asian population is primarily composed of persons of Chinese and South Asian ancestry. Household Income. Households in San Ramon and the Market Area have high incomes that can support higher levels of discretionary retail spending. Educational Attainment. San Ramon s households represent a highly-educated consumer base. Almost 64 percent of San Ramon residents age 25 or older have earned at least a bachelor s degree as of This is a key metric for certain retailers like Whole Foods and Trader Joe s. Resident Occupations, Employment, and Worker Income. A large share of San Ramon s employed residents work in high-wage management, business, and science occupations. Nearly 30 percent of employed residents work in management, business, and finance, while 20 percent work in computer, engineering, and science occupations. These occupations typically have higher salaries that can support eating out during the workday and home meal replacement at night. Future Population and Employment Growth. San Ramon s General Plan provides for an additional 17,000 residents and 19,200 jobs by This represents a significant future expansion of retail spending power in San Ramon. Real Estate Market Trends Real estate data indicate potential support for mixed-use development, particularly for both for-sale and rental residential components. General plan employment projections indicate that San Ramon has the capacity to expand its office sector, but support for office as a component of mixed-use development will depend upon the specific characteristics of the development site proposed and its proximity to amenities such as City Center. ii

8 Residential Home Prices and Rental Rates. Strong demand for homes in San Ramon has created a residential market characterized by high home sale prices and rental rates. San Ramon has a strong residential market in large part due to the high quality of the local school district, the presence of several major employers, and proximity to both freeways and nearby employment centers. Median Home Prices. Home sale prices in San Ramon are typically much higher than for Contra Costa County overall. In 2015, the median single family home price was $1,000,000 in San Ramon and $538,345 in the County, while the median price of condominiums and town homes was $552,000 in San Ramon and $390,000 in the County. Residential Rental Rate Trends. Rental rate trends between 2008 and 2015 demonstrate that San Ramon has a relatively strong rental market that recovered quickly from the recent recession. Average rental rates in the City have increased each year since Overall, the average rental rate in the City increased by nearly 50 percent between 2009 and Residential Rental Occupancy Rates. Occupancy rate trends further demonstrate solid demand for rental housing in San Ramon. The average annual rental occupancy rate in San Ramon was 96 percent between 2008 and As of the third quarter of 2016, the occupancy rate remained at 97.4 percent, indicating there is a continued strong demand for rental housing in the City. Retail Retail Inventory. No new retail space has been added to the City s inventory since the 2007 opening of The Plaza at Gale Ranch, which contrasts sharply with trends seen in other Tri-Valley cities. While the amount of retail space in San Ramon has not changed substantially since 2007, the retail inventory has increased considerably in cities such as Dublin and Livermore. Retail Space Per Capita. Measured on a per capita basis, San Ramon s retail inventory is relatively small compared to other Tri-Valley communities. This reflects both the drawing power of regional retail outside of San Ramon in Walnut Creek, Dublin, and Pleasanton and the lack of developable retail sites in San Ramon. Retail Rental Rates. Monthly average asking retail rents in the Tri-Valley range from $1.85 monthly per square foot on a triple net basis in Livermore, to $3.11 monthly per square foot in Danville. As of the third quarter 2016, the average retail asking rent in iii

9 San Ramon was $2.50 per square foot per month. It should be noted that this is a blended number, and does not differentiate between location and size of space. Actual rental rates will vary greatly from project to project. Smaller spaces in better projects can see rents of double the City s reported average. Retail Vacancy Rates. Retail properties in the City s unanchored shopping centers have consistently experienced high vacancy rates relative to the overall retail inventory. This observation is not unexpected as unanchored centers lack the draw a retail anchor provides, and they typically have locations inferior to anchored centers. Office Office Inventory. Due to the presence of Bishop Ranch, commercial space in San Ramon is strongly oriented towards office uses. At approximately 10.1 million square feet, the City s office inventory accounts for a large share of the Tri-Valley s office space, which consists of approximately 26.9 million square feet of leasable space as of the third quarter of Position in the Tri-Valley Office Market. General Plan employment projections indicate that San Ramon has the capacity to expand its office sector. However, the City will continue to compete with other well-established nodes, such as Pleasanton and Walnut Creek, which provide more amenities and have access to BART. Impact of City Center. The completion of City Center will permit Bishop Ranch and other nearby office properties to strengthen their marketing and economic performance by having access to a walkable community center with a high level of amenities and opportunities for meals and entertainment. Demand for Office Space. Support for office as a component of mixed-use development depends upon the specific characteristics of the development site proposed and its proximity to amenities such as City Center. The market for office space offered in smaller blocks away from City Center would likely be for small to medium-sized professional service companies. Key Retail Concepts and Trends There are several key retail concepts and trends that impact the viability of the retail sector in San Ramon. The following is a summary of these key concepts and trends. iv

10 Gravity Side of the Trade Area Definition of Retail Gravity. The gravity side of the trade area is the general direction from which residents and daytime workers enter the trade area and to which they travel to leave the trade area. San Ramon s Retail Gravity. For San Ramon, the gravity side of the trade area is the east side of I-680 at its intersections with Crow Canyon Road, Bollinger Canyon Road, and Alcosta Boulevard. Retail Drawing Power. Retail sites on the east side of I-680 have greater drawing power than sites on the west side since the east side has a deeper residential and commercial development pattern. Retail Trends Rapid Changes in Retail Sector. The world of retail has evolved significantly in the wake of retailer consolidation and the evolution of multi-channel retailers. Commodity versus Specialty Retail. Today, retail essentially organizes itself as either commodity retail (where goods and services are purchased with price and convenience as the primary decision points) or specialty retail (where spending discretionary income during free time primarily informs buying decisions, and the consumer has an emotional connection with the decision made). Multi-channel and Omnichannel Retail. While multi-channel retail has existed for decades (e.g., the Sears catalog, and catalog showrooms), it has evolved significantly over the past five to seven years. Creating a consistent customer experience across various retail channels (bricks-and-mortar, on-line, catalog, etc.) has become known as omnichannel retail. Also, the ubiquity of smart phones has led to showrooming where consumers can evaluate merchandise and pricing at various retail channels while in a bricks-and-mortar store. Local Retail. In a world of homogenous retail districts and shopping centers, a push for local has come to the forefront. While some local initiatives may have a significant maker/independent entrepreneur element, more often than not, local is nothing more than a marketing effort geared to push retail traffic to established retail channels. v

11 Lifestyle Centers. Another response to retailer consolidation, mall anchors in this case, lifestyle centers started appearing as in-line mall retailers who were being driven to grow started aggregating in smaller, non-anchored projects where project design and a sense of place were well-executed. Existing Retail Centers Out of a total of 2.3 million square feet of retail space, San Ramon has approximately 1.5 million square feet of retail in 17 shopping centers, with one third of this space constructed over 30 years ago. Upgrading or repurposing older shopping centers will depend on the extent to which there is sufficient economic gain to make a new investment worthwhile. Anchored vs. Unanchored Centers. San Ramon has seven shopping centers with traditional supermarket anchors on sites with 10 or more acres, and nine unanchored centers on smaller sites. Four of the remaining retail centers have non-grocery store anchors, including Worth Ranch, ShBoom, Petco, Sports Basement, and Clementine s. Non-Retail Uses. Across all the centers, a high proportion of space is occupied by nonretail uses, including financial institutions, after-school education or instruction businesses, personal services, and medical services. This reflects trends in experienced in other communities arising from a general contraction of traditional retailers, particularly independent retailers, due to macro changes in the retail industry. Center Performance. Certain centers, such as Crow Canyon Commons, The Shops at Bishop Ranch, Diablo Plaza, and the Plaza at Gale Ranch are performing well based upon occupancy and tenant mix. The Marketplace at San Ramon, Gateway Center, and Country Club Village are centers that are currently performing well, but could potentially face long-term challenges due to underperforming anchors or anchors with unsure staying power. Opportunities for Repurposing. Magnolia Square is one example of a center that has underutilized land (a parking lot behind a Petco) that could be repurposed for other uses. Centers with Mixed Use Designations. Almost all the centers are in areas of San Ramon designated for mixed use with a maximum floor area ratio (FAR) of While in many cases a mixed use designation with a higher-than-existing density may create additional value for a property and serve as an incentive to promote efficient 1 Note that higher FARs can be achieved in certain circumstances as provided for in the General Plan, North Camino Ramon Specific Plan, and Crow Canyon Specific Plan. vi

12 use of a parcel, in some cases, it may not be sufficient density to trigger the desired mixed-use outcome. In other cases, a mixed use designation could have the unintended effect of disincentivizing reinvestment in retail uses if alternative uses (such as residential) have higher value. Impact of City Center on Existing Retail. City Center is an ambitious undertaking that will bring specialty retail to a destination that is away from the gravity side of the larger regional market area. City Center will certainly have some impact on existing San Ramon retail centers, as some of the City s few specialty retailers (food and beverage more likely than other categories) may relocate to City Center. However, City Center is likely to have a larger impact on shopping centers outside of the City limits, such as Blackhawk Plaza, which has struggled to retain its specialty retail, and possibly Stoneridge Mall in Pleasanton. Sales Leakage and Supportable Square Feet San Ramon s existing retail centers primarily provide everyday commodity items for the local population (e.g., supermarkets) and residents tend to do their shopping for other goods outside San Ramon, resulting in substantial retail sales leakage. Recapture of this leakage, along with anticipated population and employment growth, could support additional retail facilities in San Ramon if the right sites were available. Total and Per Capita Retail Sales Total Retail Sales. Total retail sales for San Ramon in 2015 are estimated at approximately $790 million. 2 Top Retail Categories. By volume of sales, the three largest major retail categories are food and beverage stores, food services and drinking places, and gasoline stations. Food and Beverage Store Sales. The proportion of the City s total retail sales in food and beverage stores is considerably higher than that of the Market Area, the County, or the Bay Area. Categories with Low Proportions of Sales. The City s proportion of sales is relatively low in clothing and clothing accessory stores, home furnishings and appliance stores, and motor vehicle and parts dealers. Per Capita Sales. San Ramon exhibits low per capita retail sales across most of major store categories. On a per capita basis, annual retail sales in San Ramon at $10,336 are well below the Market Area ($20,574). 2 All sales are presented in inflation-adjusted 2015 dollars. vii

13 Retail Leakage Analysis San Ramon shows considerable leakages of sales, indicating that City residents are going outside San Ramon for many types of retail purchases and shopping experiences. Sales for the Market Area are much more in balance with demand, but even for the overall Market Area, some retail types are lacking or underrepresented, leading residents to shop these underrepresented categories at major retail centers elsewhere. Total Retail Leakage and Injections. San Ramon shows substantial retail sales leakages overall and in most major store categories, with net leakage of nearly half of potential sales for the City. Overall, for the categories showing leakages, there are over $760 million annually in lost potential retail sales. For the categories showing injections, there are only $32 million in annual sales injections/captured sales, mostly in the building materials group. Retail Categories with Greatest Leakage. The greatest leakage in absolute dollars is in the motor vehicle group, reflecting San Ramon s extremely limited auto and truck sales. General merchandise stores also show substantial leakage of sales. Other categories showing leakages of more than 30 percent of sales include home furnishings/appliances, clothing and clothing accessories stores (with 90 percent leakage), food services and drinking places, and the other retail group. Retail Leakage in Market Area. Unlike San Ramon, retail sales and resident demand are largely in balance for the overall Market Area, with net overall leakage estimated at only 11 percent compared to 47 percent for San Ramon. Supportable Retail Square Feet The supportable retail space analysis estimates all new non-motor-vehicle related retail space that San Ramon could support under low, medium, and high scenarios, starting from 2016 through the 2035 buildout of the General Plan. Supportable Square Feet by Capture Scenario. Under the low capture scenario, San Ramon could support an additional 579,000 square feet of additional retail space. Under the medium capture scenario, the City could support 868,000 additional square feet; under the high scenario, the City could support 1,157,000 additional square feet. Planned, Proposed, and Under Construction Retail. Now under construction, City Center will provide approximately 350,000 square feet of new specialty retail and viii

14 entertainment space, meeting some of this demand. Planned and proposed projects in Dublin such as the IKEA Retail Center and the Boulevard/Dublin Crossing may provide another 635,000 square feet of retail in the Market Area, leaving limited additional opportunities for retail expansion in San Ramon. Void Analysis The retail void analysis identifies the regional and national retailers that have a presence or are expanding in the Bay Area that are missing in San Ramon. Void Categories. Of the 24 merchant categories reviewed for this Study, there are 96 voids or missing retailers in 18 categories. Missing Retailers. The Study Team reviewed this list of missing retailers and identified 59 retailers, primarily in the restaurant categories, it believes are most likely to be attracted to San Ramon (e.g., best demographic match). Mixed Use Inventory Recent planning actions have resulted in mixed use designations for most of the City s existing retail centers. These mixed use designations may need to be refined in order to ensure that bonus densities are sufficient to incentivize repurposing of key properties either for reconfigured retail or new mixed-use development. Location of Existing Centers in Mixed-Use Districts. All but two of the existing retail centers are located within mixed use zones set forth in the General Plan. The remaining two centers are designated for mixed use in Specific Plans: San Ramon Square is located within the Crow Canyon Specific Plan Area, and Magnolia Square Shopping Center is located within the North Camino Ramon Specific Plan Area. Suitable Sites for Retail. The parcels in the North Camino Ramon Specific Plan Area are on the gravity side of San Ramon s trade area with a location at the east side of the Crow Canyon and I-680 intersection. The sites that are closest to the I-680/Crow Canyon interchange are the most promising for additional specialty or commodity retail centers. Maximum FAR in North Camino Ramon Specific Plan. The maximum average FAR granted by the North Camino Ramon Specific Plan (0.70) and bonus FAR (up to 1.25 in certain circumstances) program may need refinement to incent repurposing. The economic feasibility of a change in use at existing and proposed new FARs would have to be tested and confirmed with financial pro-forma analyses. ix

15 Maximum FAR for Mixed-Use Districts in General Plan. Similarly, for mixed-use sites outside the three specific plan areas, in some cases the 0.70 FAR may not be sufficient to incent owners to undertake new mixed use development. Recommendations and Next Steps The Study Team has formulated a menu of strategies and actions that San Ramon could consider to update its EDSP. Key recommendations and next steps for the City to consider include: City Center Continue to support the City Center project as the heart of San Ramon to provide a walkable, urbane place for shopping and entertainment. A successful City Center will benefit the City not only by providing new retail and entertainment options to residents and daytime workers but will also support the marketing of commercial space, including office space. Specialty and Regional Retail Revise strategies and goals to recognize that specialty or regional retail will likely be attracted only to sites at key intersections with I-680 (generally on the east side) at Crown Canyon Road and Bollinger Canyon Road. Explore increasing FARs within the North Camino Ramon Specific Plan specifically at key intersections to ensure sufficient economic incentives exists for repurposing and/or reconfiguring key opportunity sites and larger retail centers. Explore linking higher FARs to parcel aggregation to ensure sites with the best chance of success can attract new retail. Preserve Local Serving ( Commodity ) Retail Revise strategies and goals to recognize that the City s existing retail centers with high proportions of non-retail tenants (which are also seen in communities) are catering to the needs of residents. To protect existing local-serving retail and to incentivize owners to upgrade and reconfigure smaller centers to provide more amenity features that would attract additional shoppers, San Ramon could consider eliminating mixed use designations to x

16 ensure that the highest and best use of these small centers remains retail and rents remain affordable to retailers 3. Explore offering financing assistance through low-interest loans for neighborhood shopping centers to provide amenities such as outside seating and small play areas. Encourage shopping center owners to stage small events, invite food trucks, and/or provide pop-up retail to enliven the shopping experience and encourage longer stays, following the example of the Marin Country Mart. Consolidate Local Serving ( Commodity ) Retail Recognize that San Ramon has a number of retail centers with high proportions of non-retailers that do not generate sales tax revenues. Consider pruning or curating its existing retail centers to encourage consolidation of retail centers to fewer, higher performing centers and providing sufficient FAR for certain smaller centers to be redeveloped in residential or other commercial uses that would increase San Ramon s potential retail spending by adding new residents or daytime workers. Target Missing Retailers Based upon the void analysis, support shopping center owners and developers in targeting retailers that are not present in the San Ramon Market Area. Non-Retail Use of Shopping Centers Consider a maximum permitted floor area for non-retail uses with the understanding that this might result in higher vacancies or longer marketing periods for space as it becomes available. These recommendations are not mutually exclusive and offer multiple pathways to enhancing San Ramon s retail sector and the community s quality of life. 3 As part of this effort, the City would have also consider the implications of any such change on the City s ability to meet its Regional Housing Need Allocation requirements as set forth in the City s Housing Element. xi

17 1. INTRODUCTION AND BACKGROUND Overall Goal of the Study The City of San Ramon seeks to maintain its long-term fiscal health by maintaining and strengthening is retail sector. The retail sector has changed significantly over the past few years, and the City faces increasing competitive pressures to retain and attract retailers. To address these pressures and changes, the City of San Ramon ( City ) has initiated an update to its Economic Development Strategic Plan and General Plan. This Retail Analysis Report ( Report ) is the first step in the updating process, and provides pertinent data and analysis to address how the City might support, strengthen, and expand its retail offerings. The information provided in this Report is intended to provide a basis for evaluating specific retail opportunity sites during the second phase of this assignment. Policy Background and Prior Studies Policy Background The City of San Ramon has set forth several key goals and strategies to strengthen its retail sector as part of a broader economic development strategy. This report provides data, analysis, and findings to inform stakeholders and decision-makers on how these goals and strategies might be updated. The City s Economic Development Strategic Plan ( EDSP ), which was last updated in 2011, sets forth the following key goals and strategies related to the City s retail sector: Goal A: Maintain and Expand Existing Firms and Attract New Employers to San Ramon Strategy #1: Continue to improve and expand upon the City s retail base, focusing in particular on region-serving retail offering comparison shopping goods. Strategy #6: Provide adequate land use designations to accommodate planned development, with business and commercial areas complementing residential and public uses. Implementation Action M: Continue to support the planning and construction of the San Ramon City Center project. To the extent possible, the City should provide technical assistance to the developer on the permitting process and install the necessary supporting infrastructure to allow the development to proceed as quickly as possible, once plans are submitted. 1

18 Goal B: Maintain and Strengthen San Ramon s Fiscal Vitality Strategy #1: The City should pursue the development of additional retail space to generate more sales tax revenue, while maintaining its existing retail base. Implementation Action A: Pursue additional region-serving retailers to San Ramon, particularly those that generate high levels of taxable retail sales. Goal C: Maintain and Enhance San Ramon s High Quality of Life Strategy #4: Enhance shopping opportunities for comparison goods in San Ramon, which is already well-served by convenience retail in local shopping centers. Strategy #5: Broaden San Ramon s dining and entertainment options. Implementation Action J: Strategies and Implementation Actions related to the retail sector in Goal A would also contribute to the City s quality of life by broadening options for comparison goods, dining, and entertainment. Goal D: Implementing Key Planning and Development Projects Strategy #1: Complete City Center and establish it as the heart of San Ramon. Strategy #2: Continue to develop and implement the North Camino Ramon Specific Plan ( NCRSP ). The NCRSP vision is for a mixed-use district with a blend of retail, service retail, and employment housing in proximity to new and existing jobs. Strategy #3: Continue to develop Dougherty Valley as a well-served neighborhood with strong links to the rest of San Ramon. The Dougherty Valley Plan calls for the area to be fully served by public facilities and resident amenities, including retail. Implementation Action J: Strategies and Implementation Actions related to the retail sector in Goal A would also contribute to the City s quality of life by broadening options for comparison goods, dining, and entertainment. 2

19 Prior Reports This Report provides updated information and an expanded analysis of prior work completed by BAE for the City of San Ramon in In its March, 2009 Memorandum, Supportable Retail Space Analysis, BAE explored three scenarios for San Ramon s capture of retail sales from leakage and population growth: a low scenario capturing 40 percent of leakage and growth, a medium scenario capturing 60 percent of leakage and growth, and a high scenario capturing 80 percent of leakage and growth. BAE estimated that San Ramon could support approximately 500,000 square feet of retail space under the low scenario, 750,000 square feet under the medium scenario, and one million square feet under the high scenario. Given that there was a substantial amount of competitive retail development proposed or planned for surrounding cities at that time, BAE recommended that San Ramon undertake a strategic approach to attracting new region-serving retail, and look for unique opportunities focused on specific retailers. Furthermore, pre-identified and entitled sites for large-format region-serving retail would show the City s readiness to accept such retailers, who could generate strong sales tax revenues for San Ramon. Approach and Methodology As part of the process to update San Ramon s economic development goals, strategies, and implementation actions, the Report sets forth opportunities for and constraints related to maintaining and growing the City s commercial retail sectors. The analysis applies a variety of research techniques that draw from a number of information and data sources, including: Analyzing demographic data from the U.S. Census, U.S. Bureau of Labor Statistics, and other sources, such as Nielsen Inc., to identify demographic and economic drivers of retail demand; Preparing a leakage analysis that accounts for the adjacency of other retail concentrations outside but near San Ramon; Evaluating the existing retail centers and clusters through field visits, online real estate information sources such as LoopNet and shopping center websites, and discussions with knowledgeable retail brokers; and Identifying feasible target retail sectors for the City. 3

20 Key Questions With these data, this Report focuses on addressing the following key questions: What are San Ramon s demographic and economic drivers? What is San Ramon s position in its retail trade area? What are the national retail trends applicable to San Ramon? How are existing San Ramon retail centers/nodes performing? What retailers are missing? How much more retail can be supported? What are the City s potential opportunity sites? / Where will retail succeed best? Can mixed use development strengthen retail? 4

21 2. DEMOGRAPHIC AND ECONOMIC OVERVIEW Demand for retail is a function of a community s demographics and economy. This section of the report presents demographic and economic data for the City of San Ramon and discusses its implications for the City s retail sector. The data gathered represents the most pertinent demographic and economic variables evaluated by retail developers and retailers. This analysis will also serve to inform subsequent analytic work related to mixed-use opportunity sites in San Ramon. Data Sources Demographic data were compiled from a variety of nationally-recognized data sources. Nielsen, a national leader in demographic analytics services, was used to provide trends from 2000 to Nielsen uses the 2010 Decennial Census produced by the U.S. Census Bureau as a baseline, trended out and adjusted with a variety of sources to generate estimates for Longer-term projections of population, household, and employment change were based on projections provided by the Association of Bay Area Governments (ABAG) and the City of San Ramon General Plan. To the extent that data are available, information is presented for San Ramon along with two other geographies: a Market Area as defined below and the Oakland Primary Metropolitan Statistical Area (referred to in this report as the East Bay Metropolitan Area ) that is comprised of the counties of Alameda and Contra Costa. Definition of Retail Market Area When analyzing the demand for retail development in a particular place like San Ramon it is important to study both where shoppers in San Ramon originate, as well as where San Ramon residents go for shopping. For most consumers, the decision about where to shop is linked to travel time to the nearest retail outlet providing the desired shopping experience. For this study, the Study Team defined the Market Area from the perspective of where shoppers in San Ramon come from or might potentially come from. The Market Area has been defined to include San Ramon and surrounding areas, including those locales located within an approximately 10-minute drive time of central San Ramon (e.g., I-680 and Bollinger Canyon Road). This area has been defined using cities and Census Designated Places. 4 The locales constituting the Market Area are the cities of San Ramon, Dublin, and Danville, and the Blackhawk, Camino Tassajara, 4 Commonly referred to as CDPs, these are population concentrations aggregated for statistical purposes that often are functionally similar to a legally defined city (e.g., Alamo, Castro Valley). 5

22 Diablo, and Norris Canyon Census Designated Places. The Market Area is shown in Figure 1 below. While some residents of these areas may live beyond the 10-minute drive time, San Ramon and the more urbanized portions of the Market Area present the closest available shopping opportunities. There are other areas within a similar distance, but these areas are largely unpopulated and thus not significant in terms of estimating retail demand in San Ramon, or are already served by an abundance of other retail options in nearby cities such as Walnut Creek, Pleasanton, or Livermore. Figure 1: Map of San Ramon Market Area 6

23 Population and Household Trends With a 2016 population of 79,184 residents, San Ramon is a growing community with a significant concentration of high-income households. 5 The City has experienced substantial population growth in recent years, adding more than 35,000 residents between 2000 and This growth averaged 3.8 percent annually, far faster growth than that recorded for the Market Area or the East Bay Metropolitan Area. The City s household composition is heavily weighted towards family households, which make up over three-quarters of San Ramon households. San Ramon has experienced rapid population growth. As shown in Table 1, San Ramon s population grew by roughly 35,270 residents between 2000 and 2016, an annual average rate of 3.8 percent. In contrast, the Market Area and the East Bay Metropolitan Area population grew annually by 2.9 percent and 0.9 percent, respectively. Table 1: Demographic Trends, Avg. Annual % Change # Change Change Population City of San Ramon 43,916 72,148 79, % 35, % Market Area 124, , , % 72, % East Bay Metro 2,392,550 2,559,296 2,773, % 380, % Households City of San Ramon 16,591 25,301 26, % 10, % Market Area 43,834 60,355 66, % 22, % East Bay Metro 867, , , % 129, % Average Household Size City of San Ramon Market Area East Bay Metro Sources: Nielsen, 2016; BAE, San Ramon has a relatively high proportion of families with children. Family households comprise 76 percent of all households in San Ramon, representing a larger share than in the East Bay Metropolitan Area, where just over 67 percent of households are made up of families (See Figure 2). San Ramon s share of family households is comparable to the Market Area, where family households also comprise 76 percent of households. Among family households in San Ramon, the majority are comprised of married couples. As illustrated in Figure 3, the proportion of households with children in San Ramon, at 47.3 percent, is much higher than in the Market Area (43.3 percent) and in the East Bay Metropolitan Area (35.8 percent). 5 Nielsen population estimates are used in this report. For reference purposes, the California Department of Finance January 2016 population estimate for San Ramon is 78,363. 7

24 Figure 2: Household Composition, % 90% 80% 70% 60% 50% 40% 30% 20% 10% 24.0% 24.0% 76.0% 76.0% 32.9% 67.1% 0% San Ramon Market Area East Bay Metro Family Households Non-Family Households Sources: Nielsen, 2016; BAE, Figure 3: Households with Children Under 18, % 90% 80% 70% 52.7% 56.7% 64.2% 60% 50% 40% 30% 20% 47.3% 43.3% 35.8% 10% 0% San Ramon Market Area East Bay Metro Households with Children Households without Children Sources: Nielsen, 2016; BAE,

25 Age Distribution Consistent with the large proportion of households with children, San Ramon residents have a lower median age compared to residents in the Market Area and the East Bay Metropolitan Area. As of 2016, the median age in San Ramon was 38.2, compared to 39.3 in the Market Area and 38.6 in the East Bay Metropolitan Area. As shown in Figure 4, San Ramon has a higher proportion of residents under the age of 18 (27.5 percent of the population, compared to 25 percent in the Market Area and 22.3 percent in the East Bay Metropolitan Area) and a lower proportion of adults age 65 or older (10.2 percent compared to 12 percent in the Market Area and 13.8 percent in the East Bay Metropolitan Area). Figure 4: Age Distribution, % 90% 80% 10.2% 12.0% 13.8% 11.7% 12.9% 12.8% 70% 60% 50% 33.3% 31.5% 28.4% 65 or older % 30% 17.1% 18.6% 22.7% Under 18 20% 10% 0% 27.5% 25.0% 22.3% San Ramon Market Area East Bay Metro Sources: Nielsen, 2016; BAE, The median age increased in all three geographies between 2010 and 2016, which was driven in large part by the aging of the baby boomer generation. In San Ramon, the proportion of residents over the age of 65 grew from 7.8 percent in 2010 to 10.2 percent in This growth was accompanied by a decrease in the proportion of residents between the ages of 25 and 44, from 31.3 percent in 2010 to 25.5 percent in Older consumers will account for bulk of retail sales growth (not counting new residents) with most spending in the food, gifts, housewares, clothes, travel, and medical services and goods categories. 9

26 Although the City does have a relatively low proportion of residents in the 18 to 24 age cohort, there has been a large increase in this population in San Ramon and in the Market Area in recent years. Between 2010 and 2016, the number of people in the 18 to 24 age cohort (the millennials ) in San Ramon grew by 3,020 residents, or nearly 85 percent, making it the fastest growing age cohort in the City during this time. The 18 to 24 age cohort was also the fastest growing age cohort in the Market Area, which saw the number of residents in this age cohort grow by 65.8 percent between 2010 and This growing proportion of younger adult residents may signal a need for more multifamily housing options in San Ramon and the surrounding Market Area. In addition, many studies of retail consumer behavior indicate that millennial consumers tend to buy on impulse more than Baby Boomers and are more prone to use technology to make purchases. Table 2: Age Distribution, % Change City of San Ramon Number Percent Number Percent Under 18 21, % 21, % 2.4% , % 6, % 84.7% , % 6, % -16.6% , % 13, % -7.1% , % 13, % 12.7% , % 9, % 26.8% 65 or older 5, % 8, % 43.5% Total 72, % 79, % 9.8% Median Age Sources: Nielsen, 2016; BAE, Race and Ethnicity San Ramon differs markedly from the Market Area and the East Bay Metropolitan Area with respect to the racial and ethnic breakdown of the population. As shown in Figure 5, the White population comprises San Ramon s largest racial or ethnic group, accounting for 42.9 percent of the City s population, followed by the Asian population (40.5 percent), the Hispanic population (8.4 percent), those that identify with other racial or ethnic groups or those of more than one race (5.6 percent), and the Black/African American population (2.7 percent). 10

27 Figure 5: Race and Ethnicity, % 90% 2.7% 3.7% 5.6% 5.6% 8.4% 9.2% 9.9% 5.5% 80% 70% 60% 40.5% 31.4% 23.9% Black/African American Other 50% 23.3% Hispanic 40% Asian 30% 20% 42.9% 50.1% 37.3% White 10% 0% San Ramon Market Area East Bay Metro Sources: Nielsen, 2016; BAE, Asians comprise a relatively large share of the City s population. Whereas 40.5 percent of residents in San Ramon are of Asian descent, just 31.4 percent of residents in the Market Area, and 23.3 percent of residents in the East Bay Metropolitan Area, consist of individuals of Asian descent. According to American Community Survey (ACS) data from 2015, San Ramon is home to a large proportion of Indian residents, which comprise just fewer than 40 percent of those who are of Asian descent (See Figure 6). Figure 6: Asian Alone by Selected Groups, 2015 Other Asian 11% Korean 9% Filipino 15% Indian 38% Chinese 27% Sources: American Community Survey (ACS), 2015; BAE,

28 The rapid growth in persons of Asian descent since 2010 suggests that there may be increasing opportunities for San Ramon s retail sector to serve this population segment. In all three geographies, data from 2016 demonstrate a significant increase in the Asian population compared to 2010; however, the difference is especially notable in San Ramon, where growth in the Asian population accounted for nearly all the population growth between 2010 and 2016 (See Table 3). Table 3: Race and Ethnicity, Change City of San Ramon Number Percent Number Percent Hispanic/Latino (a) 6, % 6, % 432 Not Hispanic/Latino 65, % 72, % 6,604 White 35, % 33, % -1,558 Black/African American 1, % 2, % 169 Native American % % 2 Asian 25, % 32, % 7,014 Native Hawaiian/Pacific Islander % % 12 Other % % -8 Two or More Races 3, % 3, % 973 Total 72, % 79, % 7,036 Notes: (a) Includes all races for those of Hispanic/Latino background. Sources: Nielsen, 2016; BAE, Housing Characteristics Most households in San Ramon are homeowner households. As shown in Figure 7, approximately 72 percent of San Ramon households reside in ownership housing. This is comparable to the share of homeowner households in the Market Area (74 percent) and higher than the share in the East Bay Metropolitan Area (58.8 percent). 12

29 Figure 7: Household Tenure, % 90% 80% 70% 60% 50% 40% 30% 20% 10% 28.0% 26.0% 72.0% 74.0% 41.2% 58.8% 0% San Ramon Market Area East Bay Metro Owners Renters Sources: Nielsen, 2016; BAE, San Ramon and the Market Area have relatively high proportions of single-family detached housing units. As shown in Table 4, 63 percent of housing units in San Ramon are single family detached homes and 25.6 percent are multifamily units. Single family housing units (both attached and detached) account for 74.3 percent of the housing units in San Ramon, which is just under the share of single family housing units in the Market Area (77.8 percent), and above the share in the East Bay Metropolitan Area (66 percent). San Ramon and the Market Area have relatively low proportions of multifamily units. Multifamily units account for 25.6 percent of housing units in San Ramon and 22.1 percent of housing units in the Market Area, compared to 32.5 percent in the East Bay Metropolitan Area. Multifamily housing in San Ramon is most commonly provided in buildings containing between 5 and 19 units. Approximately 12.5 percent of the San Ramon housing stock is contained in multifamily buildings containing between 5 and 19 units, compared to 8.5 percent in the Market Area and 10 percent in the East Bay Metropolitan Area. 13

30 Table 4: Housing Units by Type of Structure, 2016 City of San Ramon Market Area East Bay Metro Type of Residence Number Percent Number Percent Number Percent Single Family Detached 17, % 44, % 616, % Single Family Attached 3, % 9, % 83, % Multifamily 2-4 Units 1, % 2, % 99, % Multifamily 5-19 Units 3, % 5, % 106, % Multifamily Units 1, % 2, % 57, % Multifamiy 50+ 1, % 4, % 80, % Mobile & Other (a) % % 16, % Total 27, % 69, % 1,060, % Single Family Housing Units Multifamily Housing Units 74.3% 25.6% 77.8% 22.1% 66.0% 32.5% Notes: (a) Includes standard mobile homes and boats, RVs, vans, and other vehicles that serve as a primary residence. Sources: Nielsen, 2016; BAE, The City has a much newer housing stock than the Market Area and the East Bay Metropolitan Area. As of 2016, nearly 40 percent of the City s housing stock was built after 2000, compared to 36.5 percent in the Market Area and only 17.7 percent in the East Bay Metropolitan Area (see Figure 8). Only 9.4 percent of the housing stock in San Ramon was built before 1970, compared to 13.3 percent of housing units in the Market Area and 44.5 percent of housing units in the East Bay Metropolitan Area. In 2016, the median age of housing units in San Ramon was only 23 years, which is close to the median in the Market Area (24 years), but well below the median in the East Bay Metropolitan Area (approximately 43 years). 14

31 Figure 8: Age of Housing Stock, % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 17.7% 39.7% 36.5% 9.2% 12.3% 14.0% 16.7% 16.3% 19.9% 17.3% 17.1% 16.1% 44.5% 9.4% 13.3% San Ramon Market Area East Bay Metro 2000 or later 1990 to to to or earlier Sources: Nielsen, 2016; BAE, Income, Education, and Occupation Households in San Ramon and the Market Area have high incomes relative to households in the East Bay Metropolitan Area. As shown in Table 5, the estimated annual median household income in San Ramon is $137,061, which is about the same as the median household income in the Market Area ($135,440) and substantially higher than the median household income in the East Bay Metropolitan Area ($79,236). Two-thirds of San Ramon households have incomes above $100,000 per year, compared to 65.5 percent in the Market Area and 40.0 percent in the East Bay Metropolitan Area. Table 5: Household Income, 2016 City of San Ramon Market Area East Bay Metro Income Category Number Percent Number Percent Number Percent Less than $15, % 2, % 87, % $15,000-$24, % 1, % 75, % $25,000-$34, % 2, % 66, % $35,000-$49,999 1, % 3, % 101, % $50,000-$74,999 2, % 6, % 147, % $75,000-$99,999 2, % 6, % 120, % $100,000-$149,999 5, % 14, % 172, % $150,000-$199,999 4, % 10, % 92, % $200,000 or more 7, % 19, % 132, % Total 26, % 66, % 996, % Median HH Income $137,061 $135,440 $79,236 Note: All figures are in 2016 dollars. Sources: Nielsen, 2016; BAE,

32 San Ramon s households represent a highly-educated consumer base. Almost 64 percent of San Ramon residents age 25 or older have earned at least a bachelor s degree as of 2016, compared to 60.5 percent in the Market Area and 41 percent in the East Bay Metropolitan Area (See Table 6). Among San Ramon residents age 25 and over, approximately one quarter have completed a graduate or professional degree, again reflecting the generally high level of educational attainment among the City s population. Table 6: Educational Attainment, Population Age 25+, 2016 City of San Ramon Market Area East Bay Metro Educational Attainment Number Percent Number Percent Number Percent Less than 9th Grade % 2, % 128, % 9th to 12th Grade, No Diploma % 3, % 108, % High School Graduate (incl. Equivalency) 4, % 14, % 360, % Some College, No Degree 8, % 21, % 390, % Associate Degree 3, % 9, % 139, % Bachelor's Degree 19, % 49, % 473, % Graduate/Professional Degree 12, % 30, % 308, % Total 50, % 130, % 1,908, % Population 25+ with Bachelor's Degree or Higher (%) 63.8% 60.5% 41.0% Sources: Nielsen, 2016; BAE, A large share of San Ramon s employed residents work in high-wage management, business, and science occupations. According to American Community Survey (ACS) data from 2015, approximately 28.2 percent of employed residents work in management, business, and finance, while 20 percent work in computer, engineering, and science occupations (see Figure 9). In comparison, only 29.4 percent of East Bay Metropolitan Area employed residents work in these two categories combined. 16

33 Figure 9: Employed Residents by Occupation, % 90% 80% 11.8% 9.1% 21.5% 70% 11.4% 11.7% Other (a) 60% 19.5% 16.5% Education, Legal, and Arts 50% Service 40% 30% 20% 10% 20.0% 28.2% 20.9% 10.5% 18.9% Sales and Office Computer, Engineering, and Science Management, Business, and Financial 0% San Ramon East Bay Metro Note: (a) Includes health, production, transportation, natural resources, and construction occupations. Sources: American Community Survey (ACS) 2015; BAE, Commute Flows Table 7 shows work locations for San Ramon residents, as well as where workers employed in San Ramon live, based on American Community Survey (ACS) data collected between 2006 and 2010 (the most recent time period for which these data are available). According to these data, approximately one quarter (9,005 persons) of employed San Ramon residents also work in San Ramon. Of those San Ramon residents that do not work in the City, most work in nearby cities in Contra Costa County or Alameda County. Similarly, most of the people that are employed in San Ramon live in either Contra Costa County or Alameda County. 17

34 Table 7: Commute Flows (a) City of San Ramon Residents by Place of Work Employed Persons City of San Ramon Workers by Place of Residence Employed Persons Place of Work Number Percentage Place of Residence Number Percentage San Ramon 9, % Contra Costa County 23, % Pleasanton 2, % San Ramon 9, % San Francisco 2, % Concord 2, % Oakland 1, % Danville 2, % San Jose 1, % Walnut Creek 1, % Dublin 1, % Other Contra Costa Co. Locations 9, % Walnut Creek 1, % Alameda County 10, % Danville 1, % Pleasanton 1, % Concord % Livermore 1, % Fremont % Oakland 1, % All Other Locations 10, % Dublin 1, % Total 33, % All Other Locations 7, % Total 42, % Notes: (a) The American Community Survey (ACS) data used for the most recent Census Transportation Planning Package (CTPP) uses demographic estimates based on statistical sampling conducted between Data are reported for workers age 16 and over. Sources: Census Transportation Planning Package; ACS, ; BAE, Economic Base and Employment Trends Spending by workers in San Ramon is an important source of retail demand in the City. Table 8 provides industry employment data for the jobs that are located within San Ramon, based on data from the California Employment Development Department (EDD). As of 2015, there were approximately 38,400 jobs located within the City. Employment is heavily concentrated in the professional and business services sector, which accounts for 29.7 percent of total jobs. According to available EDD data, professional and business services sector employment is spread more or less evenly across three subsectors: professional, scientific and technical services (4,083 jobs), management (3,633 jobs), and administrative and support (3,683 jobs). Between 2010 and 2015, the total number of jobs in San Ramon grew by 10,721, an increase of 38.7 percent. All but two of the major industry sectors gained jobs between 2010 and Manufacturing employment fell by 2,194 jobs, while employment in the Information sector fell by 1,001 jobs. Professional and business services expanded by 123% (6,293 jobs), accounting for more than half of the total jobs gained in San Ramon between 2010 and

35 Table 8: Industry Employment Trends, Change Industry (a) Number % Total Number % Total Professional & Business Services 5, % 11, % 6,293 Finance and Real Estate 1, % 3, % 1,724 Leisure & Hospitality 2, % 3, % 1,572 Local Government % 1, % 1,273 Health Care and Social Assistance 2, % 3, % 1,098 Wholesale Trade 1, % 2, % 1,090 Construction % 1, % 554 Other Services (except Public Administration) % % 389 Transportation and Warehousing % % 142 Educational Services % % 136 Retail Trade 2, % 2, % 14 Information 4, % 3, % -1,001 Manufacturing 3, % 1, % -2,194 Agriculture, Mining, & Utilities N/A N/A N/A N/A N/A Federal Government N/A N/A N/A N/A N/A Not Elsewhere Classified N/A N/A % N/A Total (b) 27, % 38, % 10,721 Notes: Universe consists of all wage and salary employment by place of work. (a) Cells shown as "N/A" represent data suppressed due to BLS and EDD disclosure rules. (b) Totals may not sum from parts due to data suppression. Sources: Quarterly Census of Employment and Wages (QCEW), CA EDD, 2010, 2015; BAE, Major Employers Table 9 shows the top ten private sector employers in San Ramon, according to City business license data for As shown, these firms employ 10,525 workers, accounting for just over a quarter of all workers in the City. The bulk of the firms are located at the 585-acre Bishop Ranch campus. Jobs with these firms are predominantly in the high-paying professional and business services sectors. Table 9: Major Employers in San Ramon, 2016 Number of Employer Employees Classification Chevron USA Inc 3,000 Business Services Bank of the West 1,600 Commercial Bank Robert Half International Inc. 1,174 Employment Agency GE Digital LLC 908 Miscellaneous Retail Pacific Bell 840 Telecommunications Accenture LLP 750 Business Consulting San Ramon Regional Medical Center 746 Health/Medical General Electric Company 600 Business Services Old Republic Home Protection 457 Insurance PriMed Management Consulting 451 Business Services Sources: City of San Ramon Business License Data, Sept. 2016; BAE,

36 Worker Income Employees in San Ramon earn substantially more than workers in Contra Costa County and Alameda County. As indicated in Figure 10, the median annual earnings for workers with a job in San Ramon in 2015 was just over $60,000, compared to the $40,900 and $42,700 median earnings for Contra Costa County and Alameda County workers, respectively. Workers in San Ramon have about one-third more to spend than workers in Contra Costa County and Alameda County and a portion of that spending potential will be realized at or near to the workplace. This indicates a stronger than average daytime demand base for casual dining and convenience retail services in San Ramon, in addition to the strong demand stemming from the high household income figures reported in prior sections of this report. Figure 10: Median Annual Worker Earnings, 2015 $60,757 $40,859 $42,695 San Ramon Contra Costa County Alameda County Sources: American Community Survey (ACS) 2015; BAE, Projections In the long-term, San Ramon is expected to show a substantial increase in population and households. Although ABAG figures for 2040 anticipate more modest growth in San Ramon than in surrounding areas, the figures do not account for several local land use plans and development projects that are currently underway in San Ramon. The City s own population and employment estimates for the year 2035 exceed ABAG projections and are shown in Table 10. As shown, the City expects future population growth in 2035 to exceed ABAG projections by approximately 10,000 residents. For this Report, the Study Team uses the City s General Plan forecasts for preparing estimates of retail demand, as they more accurately reflect future growth potential. Table 10: City of San Ramon Population and Employment Projections, Projection Population Jobs City of San Ramon 96,174 57,667 ABAG 86,600 56,530 Sources: ABAG; City of San Ramon; BAE,

37 3. REAL ESTATE MARKET TRENDS San Ramon has a strong residential market due largely to the high quality of the local school districts and the presence of several major employers. Strong demand for homes in San Ramon has created a residential market characterized by high home sale prices and rental rates. Residential Real Estate Residential building permits issued in San Ramon have overwhelmingly consisted of permits for single family units. Of the 650 permits that the City has issued since 2000, 74.2 percent have consisted of single family units. During the same period, 78.7 percent of residential units permitted in Contra Costa County and 48.2 percent of residential units permitted in the region were for single family units (see Figure 11). Figure 11: Residential Units Permitted by Building Type, % 90% 80% 70% 25.8% 21.3% 51.8% 60% 50% 40% 30% 20% 74.2% 78.7% 48.2% 10% 0% San Ramon Contra Costa County Bay Area Single-Family Multi-Family Sources: U.S. Census Bureau, ; BAE, For-Sale Residential Home sale prices in San Ramon are typically much higher than prices in Contra Costa County overall. In 2015, the median single family home price was $1,000,000 in San Ramon and $538,345 in the county, while the median price of condominiums and town homes was $552,000 in San Ramon and $390,000 in the county (Figure 12 and Figure 13). 21

38 Single family home sale prices in San Ramon were impacted mildly during the recent economic downturn. Median home prices dropped 20 percent in San Ramon between 2006 and 2009, compared to 58 percent in Contra Costa County. The median sale price of condominiums decreased significantly in both geographies, dropping 52 percent in San Ramon and 63 percent in Contra Costa County between 2006 and Figure 12: Median Single Family Home Sale Price, $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $ San Ramon Contra Costa Co. Single Family Homes Location San Ramon $870,000 $850,000 $754,000 $695,000 $725,000 $705,000 $720,000 $850,000 $900,000 $1,000,000 Contra Costa Co. $600,000 $619,000 $329,000 $252,000 $288,000 $275,000 $316,000 $480,000 $520,000 $538,345 Source: 2015 rereport.com; BAE,

39 Figure 13: Median Condominium/Town Home Sale Price, $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $ San Ramon Contra Costa Co. Location San Ramon $575,000 $550,000 $435,888 $338,750 $347,500 $275,000 $317,750 $560,000 $528,500 $552,000 Contra Costa Co. $405,000 $397,500 $258,500 $180,000 $180,000 $149,000 $190,000 $311,000 $375,000 $390,000 Source: 2015 rereport.com; BAE, 2016 Condos/Town Homes Detailed data on recent single family home and condominium sales in San Ramon are shown in Table 11 and Table 12. As shown, approximately 95 percent of the single-family homes sold between October 2015 and September 2016 had three or more bedrooms. The median sale price for all single-family homes sold during this period was $1 million, with only 8.9 percent selling below $750,000. Condominiums were much more affordable, at a median price of $540,000 (See Table 12). In terms of the number of units sold, condominiums represented a much smaller share of the market between October 2015 and September 2016, at just under 28 percent of the full and verified sales for the period. 23

40 Table 11: Sale Price Distribution of Single-Family Residences by Number of Bedrooms, September 2015-October 2016 (a) Number of Units Sold Sale Price Range 2 BRs 3 BRs 4 BRs 5+ BRs Total % Total Less than $500, % $500,000-$749, % $750,000-$999, % $1,000,000-$1,249, % $1,250,000-$1,499, % $1,500,000 or more % Total % % Total 4.6% 31.5% 48.5% 15.4% 100.0% Median Sale Price $707,500 $886,050 $1,085,000 $1,343,500 $1,000,000 Average Sale Price $701,012 $901,466 $1,112,176 $1,411,029 $1,072,910 Average Size (sf) 1,533 1,959 2,584 3,691 2,509 Average Price/sf $457 $460 $430 $382 $428 Notes: (a) Consists of all full and verified sales of single-family residences that were sold in San Ramon between 10/1/2015 and 9/30/2016. Sources: CoreLogic; BAE, Table 12: Sale Price Distribution of Condominiums by Number of Bedrooms, September 2015-October 2016 (a) Number of Units Sold Sale Price Range 1 BR 2 BRs 3 BRs 4+ BRs Total % Total Less than $350, % $350,000-$499, % $500,000-$649, % $650,000-$799, % $800,000 or more % Total % % Total 16.6% 53.0% 27.7% 2.8% 100.0% Median Sale Price $355,000 $521,500 $727,500 $775,000 $540,000 Average Sale Price $352,645 $519,168 $681,786 $778,071 $543,680 Average Size (sf) 665 1,144 1,747 2,336 1,264 Average Price/sf $530 $454 $390 $333 $430 Notes: (a) Consists of all full and verified sales of condominiums that were sold in San Ramon between 10/1/2015 and 9/30/2016. Sources: CoreLogic; BAE,

41 Planned and Proposed For-Sale Projects There are currently four projects in the development pipeline that include for-sale residential units. There are 42 townhome units and 6 live/work units currently under construction in the Ryan Terrace Project. The project will provide 3-bedroom and 4-bedroom units priced between $740,000 and $810,000. The Faria Preserve subdivision, which has been approved but is not yet under construction, includes 256 single-family homes, 78 condominiums, and 104 for-sale townhomes. The second phase of the approved City Center project will include a total of 487 new residential units, some of which will be marketed as for-sale condominiums. Finally, the proposed Chang residential subdivision is currently under review and will consist of 43 single family homes. Rental Residential Similar to the for-sale market, the rental residential market in San Ramon consists of relatively large units. Figure 14 shows data provided by RealFacts, which collects data on rental housing complexes with 50 units or more. RealFacts data captures 14 rental housing complexes in San Ramon containing approximately 3,800 units. As shown, as of the third quarter 2016, 58.5 percent of units in apartment complexes with 50 or more units had two or more bedrooms. Studios and one-bedroom units comprised approximately 5.3 percent and 36.3 percent, respectively. Figure 14: San Ramon Rental Stock by Number of Bedrooms, 3rd Quarter 2016 (a) 60% 50% 40% 30% 54.3% 20% 36.3% 10% 0% 5.3% 4.2% Studios One Bedroom Two Bedrooms Three Bedrooms Note: (a) Data captures rental housing complexes with at least 50 units in San Ramon. Sources: RealFacts; BAE,

42 Occupancy and Rental Rate Trends Rental rate trends between 2008 and 2015 demonstrate that San Ramon has a relatively strong rental market that recovered quickly from the recent recession. As shown in Figure 15, average rental rates in the City have increased each year since Overall, the average rental rate in the City increased by nearly 50 percent between 2009 and As of the third quarter 2016, the average asking rent in the City was $2,236 per month, which is well above the county average of $1,946 per month. Figure 15: Average Monthly Rent and Vacancy Trends, San Ramon, (a) $2,500 6% Average Monthly Rent $2,000 $1,500 $1,000 $500 $0 4.8% 4.4% 4.3% 4.0% 3.8% 3.5% 3.7% 3.5% $1,523 $1,463 $1,486 $1,617 $1,689 $1,845 $1,999 $2, % 4% 3% 2% 1% 0% Vacancy Rate Average Monthly Rent Vacancy Rate Note: (a) Data capture rental housing complexes with at least 50 units in San Ramon. Sources: RealFacts; BAE, Occupancy rate trends further demonstrate solid demand for rental housing in San Ramon. Housing markets are typically considered to have a healthy amount of vacancy when 95 percent of units are occupied, which typically allows for some mobility between rental units. As can be seen in Figure 15, the annual rental occupancy rate in San Ramon averaged 96 percent between 2008 and As of the third quarter of 2016, the occupancy rate remained at 97.4 percent, indicating there is a continued strong demand for rental housing in the City. 26

43 Planned and Proposed Rental Projects There are three mixed-use projects in the development pipeline that will include rental units. The largest of the three is the City Center project, which will include approximately 2.1 million square feet of retail, office, hotel, and residential uses. Some of the 487 residential units included in the City Center project are anticipated to be rental apartment units. The approved Faria Preserve residential subdivision will contain rental apartment units, as well as senior housing. The third project, ROEM San Ramon Valley Apartments, is currently under review and will consist of 169 rental apartment units and 2,700 square feet of commercial uses. Retail Real Estate Market Overview The City s retail inventory is comprised of 2.3 million square feet in 132 properties. Most retail space is concentrated along San Ramon Valley Boulevard, Crow Canyon Road, and Bollinger Canyon Road, which constitute the primary commercial corridors in San Ramon. The City s retail inventory includes seventeen neighborhood and community-serving shopping centers, which together comprise approximately 1.5 million square feet (See Table 13). Most of these shopping centers are older, unanchored convenience oriented centers containing less than 70,000 square feet. Other retail properties in the City primarily consist of older freestanding buildings that serve a single tenant or a limited number of smaller tenants. Table 13: San Ramon Retail Inventory by Type, 2016 % of Total Retail Type Anchor(s) Leasable SF Inventory Shopping Center 1,484, % Crow Canyon Commons Sprouts; Rite Aid 245, % The Shops at Bishop Ranch Whole Foods; Target 211, % Diablo Plaza Nob Hill; CVS 180, % The Marketplace Safeway; CVS 170, % Country Club Village Walmart; CVS 113, % Gateway Center Lucky; Walgreens 110, % The Plaza at Gale Ranch Safeway 99, % San Ramon Courtyard Center Worth Ranch; ShBoom 69, % Twin Canyon Shopping Center n/a 57, % San Ramon Square Petco 41, % Magnolia Square Shopping Center Sports Basement 39, % Orchard Supply Center n/a 33, % Canyon Lakes Shopping Center n/a 28, % Bollinger Crossing Clementine's 24, % Norris Canyon Business Park n/a 24, % Point West Center n/a 17, % Crow Canyon Shopping Place n/a 15, % General Retail 857, % Total Retail Inventory 2,342, % Sources: City of San Ramon; CoStar Group; Contra Costa County Assessor; BAE,

44 Table 14 presents inventory, vacancy, and average monthly asking rents on a triple net basis for the selected Tri-Valley communities of San Ramon, Danville, Dublin, Livermore, and Pleasanton. As of the third quarter 2016, these areas contained approximately 18 million square feet of retail. At 2.3 million square feet, San Ramon s inventory accounts for just 13 percent of the total retail gross leasable area. Table 14: Retail Market Overview, Third Quarter 2016 Summary, 3Q 2016 San Ramon Danville Dublin Livermore (b) Pleasanton Inventory 2,342,333 1,833,059 4,015,131 4,596,320 5,221,803 Occupied Stock 2,276,622 1,787,607 3,787,318 4,451,717 5,033,609 Vacant Stock 65,711 45, , , ,194 Vacancy Rate 2.8% 2.5% 5.7% 3.1% 3.6% Asking Rents, (a) Average Asking Rent (psf), Q $2.11 $3.16 $2.07 $1.74 $2.29 Average Asking Rent (psf), Q $2.50 $3.11 $2.00 $1.85 $2.49 % Change % -1.6% -3.4% 6.3% 8.7% Net Absoprtion, Net Absorption ,535 3, ,384 35,511 40,133 Net Absorption, YTD ,710 (8,466) 2,787 64,696 16,153 Notes: (a) Average asking rents reflect NNN leases. (b) Absorption is largely attributable to a new phase of the Outlet Center. Sources: CoStar Group, 2016; BAE, Measured on a per capita basis, San Ramon s retail inventory amounts to approximately 30 square feet per resident. This is relatively low compared to other Tri-Valley communities (See Figure 16) and reflects both the drawing power of regional retail outside of San Ramon, as well as lack of developable retail sites in San Ramon. 28

45 Figure 16: Gross Leasable Retail Space per Resident, Retail Supply (sq. ft. per Resident) San Ramon Danville Dublin Livermore Pleasanton Sources: CoStar Group; CA Department of Finance; BAE, As shown in Table 14, monthly average asking retail rents in the Tri-Valley range from $1.85 monthly per square foot on a triple net basis in Livermore, to $3.11 monthly per square foot in Danville. The average retail asking rent on a triple net basis in San Ramon is $2.50 per square foot per month. It should be noted that this is a blended number, and it should be used to identify larger trends as opposed to specific market conditions. For example, these numbers do not differentiate between shopping centers of significantly different location and physical attributes. Actual rental rates will vary greatly from project to project, and from space to space within a particular project. Better projects can see rents for smaller spaces of double the stated average. Most Tri-Valley communities have low vacancy rates, averaging between 2.5 percent in Danville to 5.7 percent in Dublin as of the third quarter Retail vacancies are especially low in Danville and San Ramon, suggesting both a relatively high demand from retailers to locate in these two communities, and physical and market constraints to building new projects. It must also be noted, however, that many of the tenants occupying retail space in San Ramon are non-retail tenants, including for-profit educational, financial, medical, and fitness and arts businesses. 29

46 Inventory and Absorption Trends No new retail space has been added to the City s inventory since the 2007 opening of The Plaza at Gale Ranch, contrasting sharply with trends seen in other Tri-Valley cities. Whereas the amount of retail space in San Ramon has not changed substantially since 2007, the retail inventory has increased considerably in Dublin (from 3.3 million square feet in 2007 to 4.0 million square feet in the third quarter of 2016) and Livermore (from 4.2 million square feet in 2007 to 4.6 million square feet in the third quarter of 2016). Figure 17 shows absorption trends in San Ramon for the period between 2007 and Between 2007 and 2015, annual net absorption varied substantially, ranging from -73,436 in 2009 to 124,730 in Despite some years with considerable amounts of negative absorption, San Ramon shows positive average net annual absorption over time. Annual absorption averaged approximately 14,570 square feet per year between 2007 and Much of net retail absorption from 2011 on represents re-leasing of space vacated during the Great Recession. The surrounding areas of Danville, Dublin, Livermore, and Pleasanton also experienced positive annual average absorption during this time, demonstrating long-term growth in the larger Tri-Valley retail market. Figure 17: Annual Net Retail Absorption, San Ramon, , ,730 Net Retail Absorption (sq. ft.) 100,000 50, ,000 45,064 (36,293) 46,654 32,113 27,024 (7,484) 20,535 19, ,000 (73,436) Annual Average Sources: CoStar Group, 2016; BAE, Vacancy and Rental Rates Data from CoStar on asking rents suggest that the retail real estate market in Tri-Valley has not fully recovered from the recent recession. In San Ramon, average triple net asking rents fell from $3.41 per square foot per month in 2007 to $2.30 per square foot per month in 2010 (Figure 18). Although asking rents increased slightly between 2010 and 2012, the 30

47 average asking rent again fell to $2.30 per square foot in As of the third quarter 2016, the average retail asking rent in San Ramon remained 27 percent below the 2007 average. Average asking rents in Danville, Dublin, and Livermore also remained below their 2007 levels as of the third quarter Pleasanton, however, has performed strongly relative to other Tri-Valley communities, with third quarter average asking rents exceeding their 2007 average. Again, these numbers must be seen for what they are: General trends that don t differentiate between the most and least desirable, and the largest and smallest spaces. We know from leasing materials and conversations with stakeholders that better projects are seeing rents that far exceed the 2007 average numbers cited above. Figure 18: Retail Asking Rent Trends, Q3 $4.00 $3.50 Average NNN Asking Rate (per sq. ft./mo) $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $ Q3 San Ramon Danville Dublin Livermore Pleasanton Sources: CoStar Group, 2016; BAE, As shown in Figure 19, overall retail vacancy rates in the City have fluctuated substantially since 2007, ranging from a high of 7.9 percent in 2010 to the current low of 2.8 percent. Retail properties in the City s unanchored shopping centers have consistently experienced higher vacancy rates compared to the overall retail inventory. 31

48 Figure 19: San Ramon Retail Vacancy Trends, Q3 16.0% 14.0% Retail Vacancy Rate 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Q3 All San Ramon Retail Shopping Centers Unanchored Shopping Centers Sources: CoStar Group, 2016; BAE, Planned and Proposed Retail Development There are three retail projects currently under construction. The largest project, City Center, is a mixed-use center that will feature 350,000 square feet of retail, dining, and entertainment. Plans for City Center also include a 169-room hotel and approximately 487 residential units, all to be provided above the ground floor retail. A new 6,200 square foot development at 2277 San Ramon Valley Boulevard will include restaurant, and office uses and a 17,000 square foot development at 2017 San Ramon Valley Boulevard is providing retail. ROEM San Ramon Valley Apartments, a mixed-use project that has been approved but is not yet under construction, includes 6,100 square feet of commercial space and 169 apartments. Office Market Overview San Ramon and Pleasanton are the two major office clusters with Bishop Ranch being the largest office property in San Ramon. Two-thirds of the City s office inventory is contained in Class A buildings. Virtually all Class A office space is located at Bishop Ranch in larger buildings containing more than 150,000 square feet of space. Class B space, which comprises approximately 30 percent of office space, is concentrated along Crow Canyon Road, and is also provided in several complexes at Bishop Ranch. Class C space makes up just 5 percent of the total office inventory (Table 15). 32

49 Table 15: San Ramon Office Building Inventory, Third Quarter 2016 Summary, 3Q 2016 Class A Class B Class C All Classes No. of Properties Square Footage (a) 6,612,041 2,996, ,684 10,078,792 Vacancy Rate 13.4% 4.0% 8.2% 10.4% Asking Rents (b) $2.45 $2.14 $2.15 $2.20 Notes: (a) Rentable building area. (b) Asking rents reflect monthly full service leases. Source: CoStar Group; BAE, At approximately 10.1 million square feet, the City s office inventory accounts for a large share of the Tri-Valley s office space, which consists of approximately 26.9 million square feet of leasable space as of the third quarter of Table 16 presents inventory, vacancy, and average monthly asking rents on a triple net basis in Tri-Valley. As shown, monthly average full-service rents in the Tri-Valley range from just $0.97 monthly per square foot in Livermore, to $2.72 monthly per square foot in Danville and Dublin. As of the third quarter 2016, the average full-service asking rent (all classes) in San Ramon was $2.20 per square foot per month. This represents a 7.2 percent decline from the third quarter 2015, when full-service asking rents averaged $2.37 per square foot per month. San Ramon was the Tri-Valley community with the highest average office vacancy rate at the end of the third quarter 2016, in part due to the large amount of vacant space remaining at 2600 Camino Ramon, the 1.6 million square foot site that previously served as AT&T s regional headquarters. With an average monthly asking rent of $2.45 per square foot for Class A space, San Ramon offers attractive leasing rates for businesses seeking alternatives to more expensive markets in Silicon Valley, San Francisco, and Oakland. As of the third quarter 2016, the average Class A full-service asking rent was $4.35 per square foot per month in Downtown Oakland and $5.67 per square foot per month in San Francisco s Financial District. Table 16: Tri-Valley Office Market Overview, Third Quarter 2016 Summary, 3Q 2016 San Ramon Danville Dublin Livermore Pleasanton Inventory 10,078,792 1,294,870 2,570,113 2,108,495 10,805,207 Occupied Stock 9,029,768 1,247,821 2,413,581 1,890,543 9,849,516 Vacant Stock 1,049,024 47, , , ,691 Vacancy Rate 10.4% 3.6% 6.1% 10.3% 8.8% Asking Rents, (a) Average Asking Rent (psf), Q $2.37 $2.41 $2.64 $1.35 $2.62 Average Asking Rent (psf), Q $2.20 $2.72 $2.72 $0.97 $2.71 % Change % 12.9% 3.0% -28.1% 3.4% Net Absorption, Net Absorption 2015 (288,483) 6, ,176 12, ,096 Net Absorption, YTD 2016 (412,492) 4,407 67,729 (18,538) (41,851) Notes: (a) Average asking rents reflect full-service leases. Sources: CoStar Group, 2016; BAE,

50 Inventory and Absorption Trends Figure 20 shows absorption trends in San Ramon for the period between 2007 and Between 2007 and 2015, annual net absorption varied substantially, ranging from 575,567 square feet in 2008 to -288,483 in San Ramon experienced positive average net annual absorption over time, with annual absorption averaging approximately 54,790 square feet per year between 2007 and Recent large leases include the high-profile relocation of SAP from Dublin to Bishop Ranch (150,000 square feet) in 2015, and Rodan + Fields LLC (150,000 square feet) and General Electric Digital (100,000 square feet expansion) in The surrounding areas of Danville, Dublin, Livermore, and Pleasanton also experienced positive annual average absorption during this time, demonstrating long-term growth in the larger Tri-Valley office market. Figure 20: Annual Net Office Absorption, San Ramon, Net Office Absorption (sq. ft.) 700, , , , , , , , , , ,000 70, ,567 (43,387) (257,691) 132, , ,016 (99,056) (288,483) 54, Annual Average Vacancy and Rental Rate Trends Figure 21 shows average monthly full service office lease rates and vacancy rates for all office classes for the period between 2007 and the third quarter As shown, full service asking rates have trended upwards since 2009, from $1.83 per square foot per month in 2009 to $2.39 per square foot per month in Office vacancy rates increased from 6.9 percent in 2008 to 9.9 percent in 2010, followed by large decreases in vacancy each year until Although office vacancy rates have increased each year since 2013, as of the third quarter 2016, the vacancy rate was still lower than the pre-recession high of 12.5 percent that was seen in

51 Figure 21: Office Lease Rates & Vacancy Trends, San Ramon, 3rd Quarter 2016 Average Average Office Asking Office Asking Rate Rate (per sq. ft./mo) (per sq. ft./mo) $3.00 $3.00 $2.50 $2.50 $2.00 $2.00 $1.50 $1.50 $1.00 $1.00 $0.50 $0.50 $ Q3 Q3 Sources: CoStar Group, 2016; BAE, Avg. Asking Rate Vacancy Rate San Ramon Danville Dublin Livermore Pleasanton National and Regional Office Space Trends 14% 12% 10% 8% 6% 4% 2% 0% Average Office Vacancy Rate Demand for State-of-the-Art, Green Office Space. Across the United States, there has been a notable increase in the number of office property owners and developers renovating or developing their office space into LEED certified structures, usually at the silver, gold, or platinum levels. Two factors drive this increase in interest in sustainable office space: (i) implementing design and building system features that qualify a structure for LEED certification can result in significant operational savings of the life of the building; and (ii) building users and tenants can market their green office space as a positive feature to attract employees. Younger workers, particularly in the technology sectors, seek to work for companies whose values generally align with their own and environmental sustainability is one element of these values. Demand for Building, Site and Neighborhood Amenities. Office workers, particularly workers in the Millennial generation, are increasingly demonstrating a preference for workplace locations that offer the amenities typically found in more urban environments, including proximity to public transportation, bicycle and pedestrian access, attractive retail offerings, and entertainment options. In response to this shift in preferences among workers, companies are more often seeking office locations that offer more urban-style amenities instead of opting for traditional suburban office parks. The preference for more urban amenities, particularly access to public transportation, is reflected in the preferences of companies looking for space in the Bay Area. Owners of office properties near BART or CalTrain stations are experiencing stronger leasing and rental rates than owners of properties more distant from transit. This trend could attenuate, however, as Millennial workers form families and seek traditional suburban locations to raise families and seek work places closer to home. 35

52 Higher Employment Densities in Office Space. Since the recovery from the Great Recession, office end users and technology tenants have begun to seek office space with open floor plans to both encourage interaction among employees as well as accommodate more employees in their office space to reduce real estate costs. As a result, owners of existing properties have had to open up their building interiors as part of building renovation programming. This trend has also led to increased employment densities with the gross square feet of office per employees falling from 275 or 250 square feet per employee to 225 to 250 per employee. In some cases, this ratio has reached 200 square feet per employee. Response by Bay Area Communities. Cities in the Bay Area and elsewhere have started to consider and implement strategies to reposition existing office parks and other suburban office locations to better respond to these trends and shifts in demand. In general, these strategies aim to better integrate suburban office development into the surrounding area through mixed-use development and the addition of public spaces, bicycle paths, and pedestrian networks. Elements of a repositioning strategy can also include the construction of additional housing, particularly housing affordable to local workers, and expanding the mix of retail and entertainment options. In San Ramon, the owner of Bishop Ranch has responded to this change in preference by upgrading amenities and pursuing the amenity-rich City Center that would offer a more urbane setting for residents and daytime workers. Implications for San Ramon General plan employment projections indicate that San Ramon has the capacity to expand its office sector, but the City competes with other well-established nodes in Pleasanton and Walnut Creek that have access to BART. The completion of City Center will permit Bishop Ranch and other nearby office properties to maintain and strengthen their economic performance by having access to a walkable community center with a high level of amenities and opportunities for meals and entertainment. Support for office as a component of mixed-use development will depend upon the specific characteristics of the development site proposed and its proximity to amenities such as City Center. The market for office space offered in smaller blocks away from City Center would likely be for small to medium-sized professional service companies. 36

53 4. EXISTING RETAIL CENTERS Retail Shopping Center Profiles This section expands upon data presented in Section 3 (Real Estate Market Conditions), but is focused specifically on existing retail centers in San Ramon. As shown in Table 17, just less than 1.5 million square feet of the City s leasable retail space is located within a shopping center. Most of this space is contained within one of seven major shopping centers, which together account for approximately 1.1 million square feet. As shown, the existing anchor businesses at these shopping centers include Sprouts, Rite Aid, Whole Foods, Target, Safeway, CVS, Nob Hill, Walmart, Lucky Supermarket, and Walgreens. The remaining retail centers in San Ramon contain less than 70,000 square feet of leasable retail. Four of the remaining retail centers have non-grocery store anchors, including Worth Ranch, ShBoom, Petco, Sports Basement, and Clementine s. Table 17: San Ramon Shopping Centers Summary 37

54 There are two major planned mixed use developments, each with a retail component. The City Center mixed-use project will feature 350,000 square feet of commercial retail, restaurants, and a movie theater. The retail component, now under construction, will be built as part of the first phase of the two-phase project. The second phase will include 487 residential units and a 169-room hotel. Dougherty Valley Village Center, which was approved in 2003, will be a pedestrian oriented mixed-use center that could potentially include up to 680,000 square feet of retail, office, high density residential, and civic uses. Figure 22 shows the location of all existing, under construction, and planned retail shopping centers in San Ramon. Figure 22: San Ramon Retail Context Map 38

55 1. Crow Canyon Commons Crow Canyon Commons is a 245,500 square foot community/neighborhood center located on Crow Canyon Road between Crow Canyon Place and Camino Ramon. Anchored by a Sprouts Grocery Store, Rite Aid, and Orchard Supply Hardware, the center has a current tenant mix that is appropriate for meeting everyday retail and service needs. The center s other tenants include several national retailers, including Wells Fargo, Bank of America, Big 5 Sporting Goods, GNC, Panera Bread, Starbucks, and Peet s Coffee. The remaining retail space is home to over three dozen mostly independent tenants, including restaurants, educational centers, medical service providers, and personal service stores such as salons and tailors. As of December 2016, the center had three spaces totaling 22,580 square feet available for lease, with a vacancy rate of 9.2 percent. Crow Canyon Commons is located on the gravity side of the trade area, and on the going home side of a major arterial with heavy traffic. Crow Canyon Road averages between 38,500 to 53,500 daily trips east of 680 and west of Camino Ramon (data from years 2010 and 2015). The center benefits from ample parking, and has an excellent location that is near other retail centers. Although Crow Canyon Commons has good access that allows all turning movements, the main entry on Crow Canyon does get fairly congested. Due to the high number of retail pad structures, a large portion of the center has poor visibility from the main thoroughfare. Monument signs only partially mitigate the center s poor site lines from Crow Canyon Blvd. The center s central location and experienced institutional owner make it one of the City s more viable retail centers over the long-term. As it is one of the oldest shopping centers in San Ramon, encouraging renovation should be the main focus for this center. There is ample space to reconfigure and/or redesign the center to allow for greater visibility of individual retail tenants and their signage. Even though there is clear opportunity to upgrade the center, the project s publicly traded owner will need to justify an incremental return on any capital invested when evaluating improvements. 39

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57 Current Tenants (continued) Tenant Business Type Space Type Cheese Steak Shop Restaurant Panera Bread Restaurant Zachary's Pizza Restaurant Carl's Jr. Restaurant Noodles & Company Restaurant Zpizza Restaurant Mr. Pickles Restaurant Panda Express Restaurant Sakura Japanese Cuisine Restaurant Spice Kit Asian Street Food Restaurant Dickey's Barbecue Pit Restaurant Rolls Deli Restaurant Pasta Primavera Restaurant Ike's Love & Sandwiches Restaurant Sight & Sound Specialty Retail Leslie's Swimming Pool Specialty Retail Sources: Contra Costa County Assessor; Loopnet; CoStar; BAE, The Shops at Bishop Ranch The Shops at Bishop Ranch is a 211,700 square foot commodity shopping center located on Bollinger Canyon just off I-680 at Bishop Ranch (a corporate office park that is home to over 600 companies). The center is of more recent construction and is in good condition. The center s anchors include Whole Foods and Target. National retailers include AT&T, Baja Fresh, Bank of the West, Starbucks, and Yogurtland. The remaining retail space consists of independent retailers, including restaurants, food and beverage retailers, and personal service stores such as salons. As of December 2016, the center was fully leased with one anticipated vacancy being marketed for lease. Bollinger Canyon Road is a major arterial averaging 69,500 daily trips east of 680 and west of Sunset Drive (2015). I-680 has 171,000 average daily trips. Although there is good visibility from Bollinger Canyon and to a lesser extent from Sunset Drive, access to the center itself is poor. Parking ranges from adequate to less than adequate, depending on the location in the lot. The Shops at Bishop Ranch has a good central location on the gravity side of the trade area, meaning that the site is located along a major commuter route or arterial. The center also benefits from two high-performing retail anchors that are able to draw from the entire City of San Ramon. Improvements should be considered to enhance the vehicular and pedestrian flows between this center and the new City Center project that is under construction. Overall, since this center is fully developed and high-performing, there is little potential to enhance retail at this facility beyond ensuring that the best possible pedestrian connectivity with adjacent uses is achieved. 41

58 2. The Shops at Bishop Ranch 150 Sunset Drive Property Details Year Built: 2000 Current Owners: Dayton Hudson Corp. Keenan Land Company Owned Since: N/A APN: , Zoning: Mixed Use No. Parcels Owned: 2 Lot Area Owned (ac): No. of Buildings 4 Building FAR: 0.28 Permitted FAR 0.70 Leasing Details Leasable Space (sf): 211,728 Anchor(s): Whole Foods, Available Space (sf): 8,135 1 space (divisible) Vacancy Rate: 3.8% Asking Rent: N/A Current Tenants Tenant Business Type Space Type Target Discount Store Anchor Whole Foods Grocery Store Anchor Bank of the West Financial Institution Wells Fargo Bank Financial Institution Bagel Shoppe Food and Beverages Peet's Coffee Food and Beverages Starbucks Food and Beverages Yogurtland Food and Beverages HomeGoods Home Furnishing AT&T Wireless Personal Services Galaxy Nails Personal Services Beauty Source Personal Services Utopia Tanning Personal Services Baja Fresh Restaurant Little Madfish Restaurant Muscle Maker Grill Restaurant Pottery Barn Kids Specialty Retail Sources: Contra Costa County Assessor; Loopnet; CoStar; BAE,

59 3. Marketplace at San Ramon The Marketplace at San Ramon is a 180,200 square foot community/neighborhood center providing primarily daily needs retail, food and beverage, and other services. The center is anchored by Nob Hill Foods and CVS. National retailers at the center include Starbucks, Coldstone Creamery, and Round Table Pizza. The remaining retail space is primarily occupied by restaurants, educational centers, food and beverages stores, medical services providers, and personal service stores such as salons. As of December 2016, there were seven spaces totaling approximately 7,760 square feet available for lease at the Marketplace at San Ramon. The Marketplace at San Ramon is located on a major intersection at Bollinger Canyon Road and Alcosta Boulevard. There is no access off Bollinger Canyon Road, but access from Alcosta Boulevard is fair. Visibility is fair to poor from Bollinger Canyon Road and fair from Alcosta Boulevard. Nob Hill Foods, one of the center s major anchors, is not visible from either street. Parking at the center is fair. The nearest known average daily traffic counts are 33,500 on Bollinger Canyon Road west of Alcosta (2013), and 17,200 on Alcosta south of Bollinger Canyon Road (2016). This center was built at a time when having a large amount of smaller in-line shop space was a standard practice. This project has significantly more shop space than would likely be built today. As stated earlier, this center also has poor access and visibility from the primary arterials, Bollinger Canyon Road and Alcosta Boulevard. For these reasons, a number of retailers in the center underperform their peers, and there is a significant amount of space occupied by non-retailers. Redesigning a portion of this site with an eye to accommodating additional specialty retailers (food and beverage in particular) should be explored, however, care should be taken if considering restricting uses in the center as the unintended consequence of creating additional vacancy and that vacancy s negative impacts on remaining tenants may result. To achieve a redesign or reconfiguration of this center, it may be necessary to repurpose a portion of the site to mixed uses and the economic feasibility of such a strategy would need to be explored. One issue would be whether a 0.70 floor area ratio (FAR) is sufficient to justify investment in a renovation that would include some mixed-use product. 43

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61 Current Tenants (continued) Tenant Business Type Space Type Lauryn Jewelers Personal Services Oksana Elegant Grooming Personal Services The UPS Store Personal Services/Business Services San Ramon Custom Care Pharmacy Pharmacy Four Flavors Restaurant Jimmy Johns Restaurant Pho Monsoon Vietnamese Restaurant Firehouse 37 Restaurant Papaya Grill Restaurant Imperial Delight Restaurant Sachi Sushi Restaurant Restaurant Café Tandoor Indian Cuisine Restaurant Round Table Pizza Restaurant The Hop Yard Restaurant Buffalo Wild Wings Restaurant Global Den Specialty Retail Sources: Contra Costa County Assessor; Loopnet; CoStar; BAE, Diablo Plaza Diablo Plaza is one of several shopping centers located on San Ramon Valley Boulevard. The center provides 170,800 square feet of primarily daily needs retail and food services. The center is anchored by Safeway and CVS, and includes national retailers such as Starbucks, Bev Mo!, Chipotle, and Subway. The remaining space consists of primarily of restaurants, medical services providers, and personal service establishments such as salons. As of December 2016, the center was fully leased. Diablo Plaza is located on the gravity side of the trade area in that it is at I-680 and Crow Canyon. However, it is located west of the freeway in an area with a much smaller residential and office base compared to the area located east of I-680. The center has good visibility, good access, and adequate parking. The nearest known average daily traffic count is 25,500 on San Ramon Valley Boulevard south of Crow Canyon Road (2006). I-680 s average daily traffic count is 160,000. Due to the center being fully leased with many tenants having substantial lease terms, no significant change to the project should be expected. The built-out character of the neighborhood and constraints on new residential development on the west side of 680 further reinforces this conclusion. 45

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63 Current Tenants (continued) Tenant Business Type Space Type McDonalds Restaurant Boston Market Restaurant Orient Express Restaurant Fish on the Grill Restaurant Senro Sushi Restaurant Cada Thai Restaurant Restaurant Diablo Deli Restaurant Taco Bell Restaurant Pavlo's Pizza Restaurant Chipotle Restaurant Subway Restaurant Bay Books Specialty Retail Aaron Brothers Specialty Retail Sources: Contra Costa County Assessor; Loopnet; CoStar; BAE, Country Club Village Country Club Village is a fully leased 113,900 square foot neighborhood center located on Alcosta Boulevard at the southern end of the City. The center is anchored by Walmart Neighborhood Market and CVS. The current tenant mix is appropriate for meeting everyday retail and service needs, and includes national retailers Starbucks, GNC, Pizza Hut, and Subway. The remaining space consists of mostly independent tenants, including restaurants, educational centers, and personal service stores such as salons and cleaners. As of December 2016, the Country Club Village was fully leased. The center has seen a revolving door of grocers over the years, and other tenants are known to underperform due to the center s inferior location in the trade area. Country Club Village is located on the going-home side of Alcosta Boulevard; however, the center is located at an inside location away from the gravity side of the trade area, meaning that it is positioned away from areas with traffic patterns that are more favorable for retail. Country Club Village has good visibility and good access from Alcosta Boulevard. Parking at the center is ample, and adequate space allows easy turning movements in all directions. The nearest known average daily traffic count is 12,900 on Alcosta east of Broadmoor (2014). Due to the built-out character of the neighborhood and low traffic counts on Alcosta Boulevard, the growth potential of Country Club Village is likely limited. Country Club Village s inside location means that it is not well suited for renovation or expansion and would likely not attract specialty retailers. In fact, this project should be considered as a longer-term partial or full redevelopment opportunity, as it is not encumbered by long-term leasehold interests. 47

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65 6. Gateway Centre The Gateway Centre is a 110,440 square foot community and neighborhood center located on San Ramon Valley Boulevard at the southern end of the City. The center is anchored by Lucky and Walgreens. Other national retailers with space at Gateway Centre include Dairy Queen, Papa Murphy s, and Subway. The remaining retail space consists of mostly independent retailers, including restaurants, medical services, and personal service businesses such as salons and cleaners. The current tenant mix is appropriate for meeting everyday retail and service needs. As of December 2016, Gateway Centre had three vacant spaces available, and an overall vacancy rate of 7.5 percent. Gateway Centre possesses location characteristics similar to Diablo Plaza in that it is located on the gravity side of the trade area but west of 680. The center has good access but generally poor visibility which is constrained by the placement of pads. Parking at the center is adequate. The nearest known average daily traffic count is 22,100 on San Ramon Valley Boulevard north of Alcosta (2015). The 2015 I-680 average daily traffic count is 170,000. Like Diablo Plaza, residential development constraints on the west side of 680 limit the growth potential of Gateway Centre. 49

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67 7. The Plaza at Gale Ranch The Plaza at Gale Ranch is a 99,800 square foot community and neighborhood center located on Bollinger Canyon Road and Dougherty Road and anchored by Safeway (including an in-store pharmacy, and a branded gas station). One other national retail tenant is Subway. The remaining tenants consist of medical service providers, financial institutions, and independent businesses such as restaurants, educational centers, food and beverage stores, and personal service establishments. The current tenant mix is appropriate for meeting everyday retail and service needs. As of December 2016, The Plaza at Gale Ranch had one vacant space available for an overall vacancy rate of 3.6 percent. The Plaza at Gale Ranch is busy despite being sited in an inside location in the trade area, and not being on the going home side of Bollinger Canyon Road. The center has good access, in part due to being at a signalized intersection with other signalized access points; however, pads on the corner of the site limit visibility from the street. Parking at the center is adequate. The nearest known average daily traffic count is 30,000 on Bollinger Canyon Road east of Dougherty Road (2016). The Plaza at Gale Ranch has strong retail sales growth potential due to the planned residential development in Dougherty Valley and the lack of another retail project serving the immediate area, but it is fully developed and cannot physically expand. To the extent that any retail is included in the commercial component of the Dougherty Valley Village Center, existing or future potential retail sales could be impacted at the Plaza at Gale Ranch. 51

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69 8, 9, 16, & 17. San Ramon Courtyard Center, Twin Canyon Shopping Center, Point West Center & Crow Canyon Shopping Place The San Ramon Courtyard Center, Twin Canyon Shopping Center, Point West Center, and Crow Canyon Shopping Place are four retail projects that occupy the area just west of 680 and east of San Ramon Valley Boulevard, between Crow Canyon Road and Norris Canyon Road. At 69,000 square feet, San Ramon Courtyard Center is the largest of the four centers, followed by Twin Canyon Shopping Center (57,200 sq. ft.), Point West Center (17,400 sq. ft.), and Crow Canyon Shopping Place (15,400 sq. ft.). National retailers at these centers are few, and include Togo s Sandwiches at Twin Canyon Shopping Center. The remaining retail space consists mostly of medical service providers and independent retailers, such as restaurants, educational centers, food and beverage stores, and personal service establishments such as salons. As of December 2016, the Point West Center and Twin Canyon Shopping Center were both fully leased. Crow Canyon Shopping Place had one vacant space available and an overall vacancy rate of 8.3 percent, while the San Ramon Courtyard Center had four vacancies and an overall vacancy rate of 12.0 percent. Access to these centers is fair, with right and left turns possible off of San Ramon Valley Boulevard. Although most of the retail space is located mid-block, the centers benefit from good visibility and have adequate parking available. The nearest known average daily traffic count is 25,500 on San Ramon Valley Boulevard south of Crow Canyon Road (2006). These centers, however, are of limited appeal to larger commodity or specialty retailers due to a lack of lot depth that interferes with creating retail spaces of adequate depth amenitized by well-designed parking fields. 53

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74 10. Magnolia Square Shopping Center Magnolia Square Shopping Center is a mixed shopping center located at Crow Canyon Place and Fostoria Way. The center s national retailers include Petco, Subway, Hertz, Starbucks, See s Candies, and Baskin-Robbins. The remaining retail space consists primarily of independent retailers, mostly food and beverage. As of December 2016, Magnolia Square Shopping Center had three vacant spaces available, and an overall vacancy rate of 28.6 percent, primarily due to a large vacant pad fronting Crow Canyon Road. Magnolia Square benefits from a very good location with good visibility at the major intersection of Crow Canyon Road and Crow Canyon Place. Access to the center is fair at best being limited to/from Crow Canyon Place. The placement of the Petco building is a serious design flaw, as it blocks vehicular access between the project s two parking fields. The parking south of Petco is of less than adequate size and the parking north of Petco is essentially unused due to its location and path of travel. The nearest known average daily traffic count is between 38,500 to 53,500 daily trips on Crow Canyon Road east of 680 and west of Camino Ramon, and 12,700 on Crow Canyon Place north of Crow Canyon Road (2016). Magnolia Square s growth potential as a major retail center is limited due to the site s configuration. The City should consider allowing the repurposing of the rear parking lot located north of Petco at the corner of Fostoria and Crow Canyon Place. The underutilized parking lot is currently disconnected from the remainder of the site, and could easily be redeveloped into an office or multifamily project without disadvantaging Magnolia Square more than it is presently disadvantaged. The City could explore how this center could be reconfigured to take advantage of Costco being located across the street Costco did not exist when Magnolia Square was originally designed and built), and whether any such reconfiguration would be financially feasible. 58

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76 11. Orchard Supply Center The Orchard Supply Center is a 39,200 square foot destination specialty retail shopping center located on Marketplace behind the Marketplace Shopping Center. Sports Basement is the only national retailer located at the site. The remaining tenants include restaurants, a cleaner, and an educational center. As of December 2016, the Orchard Supply Center was fully leased. The Orchard Supply Center effectively functions as an extension of the Marketplace Shopping Center. The center has good access and adequate parking, although visibility is poor due to its distance from the major roadway. The nearest known average daily traffic counts are 33,500 on Bollinger Canyon Road west of Alcosta (2013), and 17,200 on Alcosta south of Bollinger Canyon Road (2016). Due to the center s secondary location, the growth potential of the Orchard Supply Center is limited in terms of potential as a retail center. Tenants for this project are limited to those like Sports Basement, a destination retailer that typically seeks secondary locations offering attractive rental rates. 60

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78 12. San Ramon Square San Ramon Square is a 34,000 square foot community center located on San Ramon Valley Boulevard, just north of Deerwood Road. The center s national retailers include Mountain Mike s Pizza. San Ramon Square is primarily a food service destination, and includes several restaurants and food and beverage stores. As of January 2017, there was no space available for lease at the center. The center has a poor location with little appeal to for retailers for whom convenience attributes are an important site attribute. The nearest known average daily traffic count is 17,900 on San Ramon Valley Boulevard north of Hooper Drive (2016). This one of the older retail centers in San Ramon but it is almost fully occupied. It located within the Crow Canyon Specific Plan area with a Village Mixed Use designation with a 1.25 FAR permitted. Over the long term, this site will likely convert to mixed use depending on the financial goals of the owner and other development activity in the plan area. 62

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80 13. Canyon Lakes Shopping Center The Canyon Lakes Shopping Center is a 28,700 square foot neighborhood center located on Bollinger Canyon Way at Canyon Lakes Drive. Domino s Pizza is the sole national retailer with space at Canyon Lakes. The remaining retail space consists mostly of medical service providers and independent businesses, including restaurants, educational centers, and personal services. The center also contains the Gateway to India Market, a small specialty food store offering a variety of Indian dry goods and produce. As of December 2016, Canyon Lakes had one vacant space available, and an overall vacancy rate of 5.2 percent. The Canyon Lakes Shopping Center is located next to the Canyon Lakes Golf Club & Brewery and is surrounded by homes. The center has poor access, poor visibility, and a poor location due to its mid-block location. The center is not on the going-home side of Bollinger Canyon Road. Parking at the center is inadequate. The nearest known average daily traffic count is 26,900 on Bollinger Canyon Road east of Canyon Lakes (2015). Due to its inside location, this center has little potential for specialty retail. This project also will likely have little appeal for retailers for whom convenience attributes are an important site attribute. 64

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82 14. Bollinger Crossing Bollinger Crossing is a 24,910 square foot neighborhood center located next to a gas station on San Ramon Valley Boulevard near 680. The center is comprised of two buildings, which have separate owners. There are currently eight tenants at the center. The tenant mix is split between medical service providers, restaurants, salons, and a specialty food store known as Souk Market. Souk Market is a specialty foods retailer that caters to the local Indian and Mediterranean markets. As of December 2016, there was one vacancy at Bollinger Crossing due to the closure of Chevys restaurant. Bollinger Crossing enjoys good access, good visibility, and adequate parking. The nearest known average daily traffic count is 30,100 on San Ramon Valley Boulevard south of Bollinger Canyon Road (2016). Although the location of the center is good at a major intersection near 680, the property s size and configuration (e.g., shallow parcel depth) will make it difficult to develop as a meaningful retail center. The site may be better suited for non-retail uses. 66

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84 15. Norris Canyon Business Park Located on San Ramon Valley Boulevard at Norris Canyon Road, the Norris Canyon Business Park consists of one freestanding 52,150 square foot building with mixed office and retail uses. The retail component of the Norris Canyon Business Park center consists of 24,600 square feet of primarily business serving convenience retail. Avis and Budget are the center s sole national chain stores. The remaining tenants consist of medical service providers and independent retailers including restaurants, educational centers, and personal service stores such as salons, spas, and cleaners. Despite the center s poor mid-block location, it has good access and good visibility from San Ramon Valley Boulevard. The center also shares a large parking lot with Regal Cinemas, so parking is adequate. The nearest known average daily traffic count is 32,700 on Norris Canyon Road west of San Ramon Valley Boulevard (2014). The parcel s shallow depth limits its attractiveness as an opportunity site for specialty retail. 68

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86 Summary Evaluation of Existing Retail Centers San Ramon s retail centers are generally constrained by site characteristics or are utilitarian in nature. Crow Canyon Commons, The Shops at Bishop Ranch, Diablo Plaza, and The Plaza at Gale Ranch are all performing extremely well, and while some cosmetic or site plan upgrades might be desirable, no significant investment or intervention is needed for these projects to continue to be viable. The Marketplace, Gateway Center, and Country Club Village presently perform well, but present concerns for future performance. These centers have underperforming anchors, anchors that have somewhat questionable long-term staying power, or site plans that are not optimal by today s standards. Magnolia Square presents the best example of a project that is underperforming. While Magnolia Square is ideally situated in the trade area, it suffers from high vacancy and has a significant amount of land that is underutilized due to poor site planning. San Ramon is under retailed as compared with surrounding areas, and this fact of being under retailed leads to even the least compelling centers having little vacant space. That said, a significant amount of San Ramon retail space is dedicated to uses that serve citizens daily needs, but which are non-sales tax generating and may therefore at odds with the City s fiscal goals. One approach to address this would be to revise the City s zoning code to limit certain types of uses to a percentage of gross leasable area. However, care must be taken to anticipate and plan for unintended consequences such as higher vacancy rates that might undermine the viability of affected projects. Almost all the centers are in areas of San Ramon designated for mixed use with a maximum floor area ratio (FAR) of While a mixed-use designation with a higher-than-existing density creates additional value to a property and serves as an incentive to promote more efficient use of a parcel, a 0.70 FAR may not provide an opportunity to create density sufficient to trigger redevelopment of any sort (much less a mixed-use outcome) because the economic thresholds needed to justify investment would not be met. Further, a higher-than-existing FAR may also have the unintended effect of disincentivizing upgrading retail if alternative uses such as residential have higher value, resulting in reinvesting in retail not being as attractive an alternative. The City should strongly consider not increasing FAR on sites that it wishes to have remain in retail uses. The Study Team will investigate this particular issue in more detail during the opportunity site phase of the assignment. 6 It should be noted that higher FARs are possible in certain circumstances as set forth in the General Plan and Crow Canyon Specific Plan and North Camino Ramon Specific Plan. 70

87 Impact of City Center on Existing Retail City Center is an ambitious undertaking that will bring specialty retail to a destination that is away from the gravity side of the larger regional market area. City Center will certainly have some impact on existing San Ramon retail centers, as some of the City s few specialty retailers (food and beverage more likely than other categories) may relocate to City Center. However, City Center is likely to have a larger impact on shopping centers outside of the City limits such as Blackhawk Plaza, which has struggled to retain its specialty retail, and Stoneridge Mall in Pleasanton. 71

88 5. RETAIL TRENDS Key Retail Concepts and Trends This section of the report provides a brief description and analysis of several key retail concepts and national trends that are relevant to San Ramon. These concepts and trends collectively provide a framework for evaluating San Ramon s current retail and potential for new retail development. Downtowns to Malls to Big Box back to Downtown. Over the past sixty years as the United States became more auto dependent, downtown shopping districts gave way to suburban shopping including enclosed malls and strip shopping centers. Downtowns have struggled to retain and attract retailers. Over the past twenty-five years, the retail market evolved yet again with department stores giving up market share to big box retailers that focus on value (e.g., Costco, Best Buy, Walmart, Staples, and Target) and consequently the number of viable shopping malls and centers has contracted. During this same period, a few downtowns have staged a revival with mixed-use redevelopment and urban shopping and entertainment districts as consumers sought more authentic urban experiences; however, while downtown retail centers have shown strength, they have not replaced stronger suburban regional shopping centers. Suburban communities for their part are now faced with repurposing underperforming centers and malls. Many have sought to create denser, more walkable mixed-use centers to become more urbane as they compete for new residents and jobs with urban centers and other suburbs. 7 This has led to suburban cities planning town centers and urban villages that include a large retail component along with other commercial uses and residential development. San Ramon recognized these trends when it approved the City Center development project now under construction by the Sunset Development Company. The City Center project will provide 350,000 square feet of retail shops, restaurants, and multiscreen movie theater in a mixed use setting with a one-acre plaza for informal gatherings, art and food exhibits, small music concerts, and public festivities. The City Center project will provide San Ramon with a retail and social center and is anticipated to function as the core of an as yet unbuilt downtown that San Ramon is presently lacking. Gravity Side of the Trade Area. The gravity side of the trade area is defined as the general direction in the trade area from which residents and daytime workers enter the trade area and to which they travel to leave the area. In San Ramon, the intersections of Crow Canyon Road, Bollinger Canyon Road, and Alcosta Boulevard and I-680 have the 7 See Dunham-Jones, Ellen and Williamson, June, Retrofitting Suburbia: Urban Design Solutions for Redesigning Suburbs, 2011; and Urban Land Institute, Creating Great Town Centers and Urban Villages,

89 greatest draw. This drawing power is asymmetric, with sites close-in on the eastside of I- 680 having greater drawing power than sites on the west side of I-680 due to topography and the much deeper development pattern east of I-680. This means that the east side of the aforementioned three intersections will be the most desirable locations for retailers. The lack of retail space in the town has also led to areas on the west side of two of the three intersections having significant retail development. The success of the west-of-i- 680 retail is largely due to capacity constraint in the market (i.e., there is insufficient space to develop retail projects east of I-680). Figure 23: San Ramon s Retail Gravity Sources: Google Earth 2016; BAE

90 Commodity versus Specialty Retail. At its essence, today s environment is about convenience and price versus service and experience. Commodity retail goods and services are those that are purchased and consumed on a regular basis from primary household funds, largely without emotional attachment by the consumer, and at retailers and retail shopping centers offering the consumer the combination of low price and convenience most suited to the consumer s needs at a particular moment. Examples of commodity retailers include local convenience stores, drug stores, grocery stores, discounters, and warehouse stores. A "commodity shopping center s" primary purpose is the aggregation of a number of commodity retailers in one location, which allows for convenient cross-shopping. While habits may be developed over time (e.g., shopping at the same grocery store), consumers tend to view these retailers as interchangeable, and do not have a strong connection to a commodity retailer s brand or to a commodity shopping venue. For the most part, internet shopping is an option most consistent with purchasing commodity goods and services (see more in the discussion of omnichannel retail below). Figure 24: Commodity vs. Specialty Retail Source: ULI, Greensfelder Commercial Real Estate 2016; BAE, Specialty retail goods and services, by contrast, are those that are purchased by consumers using "discretionary funds (i.e., funds not designated for basics like rent, food, and transportation), and selected and often consumed during free or discretionary time (i.e., when not working or tending to daily responsibilities). Successful specialty shopping venues deliver unique and attractive combinations of tenant mix and environment (i.e., a sense of place), often reflecting the character of consumers in the market or trade area in which they operate. Equally as important, these specialty shopping areas lend themselves to extended consumer stays. An emotional connection with the overall shopping "experience is an important part of the consumer s point of reference. Successful specialty shopping venues, regardless of format, deliver a unique combination of "product" (i.e., shops) and place (i.e., 74

91 physical and conceptual environment), unique and attractive to the consumer within the market or trade area in question. The term comparison goods, which are goods that consumers do not purchase on a frequent basis (i.e., daily or weekly), is often used interchangeably with commodity goods. These goods are more likely to cause consumers to compare price, quality, and features than everyday items, and shoppers are often willing to travel further and endure greater inconvenience for the privilege of saving money or greater selection. Retailers selling comparison goods are often referred to as promotional or destination retailers. Both commodity and specialty retailers can fit the definition of destination retail. The distinction lies in the intent or desire to spend more time shopping to better understand the product or choice of products, as opposed to the shopping experience and environment. The distinction may also be nuanced. For example, in the case of Whole Foods, the Apple Store, or Bass Pro sporting goods, each sells commodity, however, the product and brand positioning, merchandising strategies, and environment or theater are specialty in nature. Among San Ramon s retail centers, all are commodity centers that primarily cater to the daily needs of residents. Some centers have limited specialty retail offerings, mostly of the food and beverage variety. For specialty retail, most residents of San Ramon travel north to the Broadway in downtown Walnut Creek or south to the Livermore Outlets, Stoneridge Mall, and Downtown Pleasanton. The Center City project is targeted to specialty retailers as well as restaurants, and will be the City s first and only truly specialty project. Specialty tenants like Pottery Barn Kids that have located in commodity centers due to lack of other options are already planning to relocate to City Center. Lifestyle and Hybrid Centers. With respect to so-called lifestyle and hybrid commodityspecialty projects, Urban Land Institute s Professional Real Estate Development manual states: Early lifestyle centers successfully combined desirable retail shops with appealing architecture and a variety of outdoor settings spawning the lifestyle center. [ ] These early centers were, in part driven by a trend in which small specialty retailers faced a shortage of high quality specialty retail space at the same moment that regional mall failures were accelerating. 8 The dominant new commodity retail and shopping center formats had, in fact, left small store specialty retailers with few reliable anchors, and developers with no clearly defined shopping center template to replicate, spawning the ill-defined and somewhat chaotic 8 Peiser, Richard and Hamilton, David, Professional Real Estate Development, Third Edition, Urban Land Institute,

92 lifestyle center concept. Most malls failed to function as places conducive to social interaction and connection to community. Retail designer Roy Higgs noted a Need to create a powerful and different sense of place. This is especially true of mixed-use developments where, very often, it is the space between the buildings that requires more design attention. As lifestyle projects proliferated, more and more frequently, they failed to incorporate a well-designed sense of place, the absence of which had helped hasten the demise of many malls. 9 City Center will fit the definition of a lifestyle project. Figure 25: Examples of Lifestyle Centers Sources: Greensfelder Commercial Real Estate 2016; Google Images 2016; BAE, 2016 Higgs also notes that hybrid commodity-specialty projects are generally a risky option for a shopping center developer because the elements of price and convenience that underlie optimal commodity shopping center development generally weaken the elements of better product and place-making essential to well-executed specialty retail centers. Likewise, the higher costs and place-making principles central to specialty retail degrade the price/convenience equation essential to commodity retailers. Multi-channel and Omnichannel Retailing. With the advent of e-commerce, retail is undergoing rapid changes as sticks and bricks retailers compete with e-retailers such as Amazon and ebay. While there were early fears that physical stores would be obsolete, and many retailers disappeared or suffered sharp decline in sales, the best performing retailers have adapted 9 Higgs Roy, Now Trending: Design of the Times, Chain Store Age, August 15,

93 and are promoting sales through multiple channels, including physical stores, retail websites, social media, and other media (often referred to as omnichannel retailing ) 10. This trend is characterized by retailers creating a seamless shopping experience regardless of whether consumers are shopping online, from portable devices, from catalogs, or in a store. Physical retailers Macy s, Target, and Walmart are good examples have established robust e- commerce portals and utilize their stores as fulfillment centers for online order pick-up and returns. Meanwhile retailers such as Amazon and Bonobos that were exclusively e-commerce have outlets have opened or plan to open physical stores to further expand their sales. The consensus among retail analysts is that brick and mortar will continue to be the foundation of omnichannel retailing since stores provide a sensory experience of the offered goods as well as convenience. Figure 26: Omnichannel Retail Image: Rishabh Software, Branding Retail as Local. The primary goal of hyper-localization is to drive traffic from virtual shopping environments to bricks-and-mortar shopping environments. Strategies aimed at combining opportunities both to experience and to buy a product are employed because consumers have more of a connection, and by extension, will be more likely to purchase products they can see, touch, and try. Likewise, a hyper-local marketing strategy must emphasize sourcing, service, and shopping. The correlation between experience and purchasing is the reason REI offers free classes, Williams Sonoma has cooking demonstrations, local bookstores have authors reading from their latest works, and Costco offers free samples. 10 Retail Systems Research, Inc., Gaming Google: The Growing Importance of Omniretail, March

94 The most successful hyper-local strategies combine a robust merchandise mix, stellar service, an immersive environment, and the right mix of price and convenience. Ultimately, retailers who are able to balance the seemingly opposing forces of cost, convenience, and customization on the same plane will be the most compelling in today s rapidly evolving retail world. Something to watch is whether this marketing strategy will evolve further into local or chain players offering unique, region-specific goods, like etsy.com in a bricks-and-mortar format. Active versus Inactive Uses. Another way to think about retail is in terms of active and inactive uses. Active uses refer to situations where shoppers or pedestrians interact with built spaces, even if they do not go inside to buy a good or service. Examples would include specialty retailers, restaurants, some grocery or drug stores, and even a karate studio, art gallery, or real estate agency. Figure 27: Examples of Active Uses Images: Greensfelder Commercial Real Estate 2016; Google Images By contrast, inactive uses refer to situations where the flow of a retail district is broken so there is a significant gap such that pedestrians do not interact with the built environment. Examples include offices, medical facilities, auto repair, and big box stores without outward-facing interactive displays (e.g. Costco, some supermarkets, and drug stores, some big-box retailers). Inactive uses are often created through poor design. 78

95 Figure 28: Examples of Inactive Uses Images: Greensfelder Commercial Real Estate 2016; Google Images Implications of Retail Trends for San Ramon Despite the current planning emphasis on mixed-use development, there is a place for traditional strip shopping centers. San Ramon a suburban, auto-oriented master planned community - is one such place. However, retail s evolution to today s commodity vs specialty paradigm results in commodity retail centers that have trouble adapting and either falter as first class tenants can no longer be found to occupy space, or in San Ramon s case, as space is repurposed to non-retail uses, creating inactive zones within centers. The rise of multichannel and omnichannel retailing creates headwinds for communities like San Ramon to attract new retail development, as many national and regional retailers are pursuing retrenchment strategies by reducing their physical footprint. The emergence of life-style centers and town centers reflects the need to offer a sense of place for consumers to spend their precious discretionary time. The inability of owners of San Ramon s retail centers to adapt their centers for specialty retail uses, as well as the lack of any downtown district, are the reasons that Sunset Development is developing City Center. City Center s ultimate success will depend on its ability to compete with Stoneridge Mall, Broadway Plaza, Downtown Pleasanton, Downtown Danville, and the Livermore outlets. To be successful, it will need to significantly distinguish itself from these specialty retail alternatives. If long-term leasehold encumbrances can be overcome, there are two existing San Ramon projects, Marketplace and Magnolia Square, which have significant potential to be redeveloped into specialty retail projects. As discussed earlier, Magnolia Square has an excellent location, but suffers from high vacancy that cannot otherwise be explained by its physical location in the City. Magnolia Square simply needs to be able to financially support significant modifications, and for its owner to see a return on these modifications. It lends itself to partial or complete redevelopment as a mixed-use project with a significant ground floor retail component. In order to best serve the community, its ground floor retail should not 79

96 be an afterthought, but rather, the driver. The Marketplace simply has far more small shop space than would ordinarily be built today, and reconfiguring some of this space (which typically has shorter lease terms than anchor stores and national retailers) might lead to an opportunity to create a destination reminiscent, in the best possible scenario, of the Marin Country Mart. 80

97 6. SALES AND LEAKAGE ANALYSIS & SUPPORTABLE SQUARE FEET Sales and Leakage Analysis This section examines retail sales conditions in San Ramon and the retail Market Area, as defined above. Data for the City and the Market Area are presented, along with comparative data for the greater Tri-Valley Area, Contra Costa County, and the Bay Area. A leakage analysis for San Ramon and the Market Area is then presented to assess the relative strength of major retail sectors. The primary source of information on general retail expenditures in California is the taxable retail sales data published by the State Board of Equalization (SBOE). SBOE publishes Taxable Sales in California, a quarterly and annual publication that reports taxable sales by major store categories by city and county. With adjustments made to take into account nontaxable sales such as food and prescriptions, this source usually offers the best baseline data for jurisdictions for which it is available. However, SBOE data are not generally published for subareas of municipalities or for subareas of the unincorporated portions of a county, and there are unincorporated areas within the Market Area (i.e., Blackhawk) with substantial retail sales that need to be considered in the analysis of retail market conditions. Because of the limitations with SBOE data with respect to availability for unincorporated areas, additional data for Blackhawk was derived based on the 2012 Economic Census. The Economic Census has also been used to estimate nontaxable sales as a proportion of total sales, based on a comparison with 2012 SBOE data for the State of California. As noted above, retail sales data for the overall Market Area required supplementing SBOE data with Economic Census data for Blackhawk. Furthermore, because of disclosure issues in SBOE data, BAE generated its own estimates of general merchandise store sales for San Ramon and other parts of the Market Area based on published sales performance data for the major stores in each of the affected jurisdictions. 81

98 Estimated Retail Sales in San Ramon and the Market Area by Major Retail Category At the time of this analysis, the most recent published data from SBOE were from Sales in 2014 were converted to per capita sales based on 2014 population and inflated to 2015 dollars, and applied to 2016 population estimates to generate an estimate of current year retail sales. A similar process was used for the Blackhawk data from the 2012 Economic Census. These estimates then are used provide point-in-time data for the City and Market Area by major retail category. Further explanation of the methodology can be found in the tables in Appendix B. For the purposes of the analysis here, the estimated retail sales have been grouped into the nine major SBOE categories: Motor Vehicle and Parts Dealers Home Furnishings and Appliance Stores Building Materials and Garden Equipment and Supplies Food and Beverage Stores Gasoline Stations Clothing and Clothing Accessories Stores General Merchandise Stores Food Services and Drinking Places Other Retail Group Sales at non-retail outlets are excluded from the analysis. San Ramon As shown in Table 18, retail sales for the City in 2016 are estimated at approximately $790 million (all sales presented in inflation-adjusted 2015 dollars). By volume of sales, the three largest categories are food and beverage stores at 24 percent of sales, food services and drinking places at 15 percent, and gasoline stations, also at 15 percent. The proportion of the City s total retail sales in food and beverage store sales is considerably higher than that of the Market Area, the County, or the Bay Area. A similar pattern holds for gasoline stations. The City s proportion of sales are relatively low in clothing and clothing accessory stores, home furnishings and appliance stores, and motor vehicle and parts dealers. San Ramon exhibits low per capita retail sales overall and in most of the major store categories. On a per capita basis, overall retail sales in San Ramon at $10,336 are well below the Market Area ($17,441), Contra Costa County ($13,678), or the Bay Area ($16,590). San 82

99 Ramon only outperforms the Bay Area in building materials and gasoline stations, with food and beverage store sales per capita at nearly area-wide levels. These basic retail data indicate that overall, San Ramon s retail is focused on stores providing everyday items for the local population (e.g., supermarkets), rather than attracting shoppers from elsewhere to buy specialty goods. While the leakage analysis will present a more refined picture, the proportions of per capita sales by category are a first indicator of strengths and weaknesses in the retail sector in San Ramon. Market Area Market Area retail sales for 2014 are estimated at approximately $3.3 billion, about four times the sales in San Ramon alone. Over one-quarter of this is in the automotive sector, in which San Ramon itself has very limited sales. The food and beverage store category has the second highest sales, at 13 percent of the total. On a per capita basis, the Market Area shows total sales above San Ramon, the county, and the state. Per capita sales are above Bay Area for motor vehicle and parts dealers, home furnishings and appliances, the building materials group, gasoline stations, and general merchandise stores. The other categories have sales approaching Bay Area per capita levels, with the exception of clothing and clothing accessories stores, where demand is likely being met at regional destinations outside the Market Area, including Stoneridge Mall, Broadway Plaza in Walnut Creek, and the San Francisco Premium Outlets in Livermore. 83

100 Table 18: Total Estimated 2014 Retail Sales Sales in 2015 $000 (a) Market Contra Costa San Ramon Area County Bay Area Motor Vehicle and Parts Dealers $46,620 $883,120 $2,983,220 $22,909,173 Home Furnishings and Appliance Stores $45,814 $201,757 $658,975 $6,705,339 Bldg. Matrl. and Garden Equip. and Supplies $111,417 $201,036 $915,362 $7,221,847 Food and Beverage Stores $187,866 $435,466 $2,598,507 $19,610,649 Gasoline Stations $116,127 $300,398 $1,599,455 $10,363,477 Clothing and Clothing Accessories Stores $9,603 $130,732 $855,415 $9,128,710 General Merchandise Stores $65,000 $365,433 $2,054,628 $13,648,377 Food Services and Drinking Places $118,080 $425,439 $1,649,777 $18,738,875 Other Retail Group $89,903 $349,783 $1,691,823 $15,825,514 Retail Outlets Total $790,430 $3,293,164 $15,007,161 $124,151,960 Sales per Capita in 2015 $ Contra Costa San Ramon County Bay Area Motor Vehicle and Parts Dealers $610 $4,677 $2,719 $3,061 Home Furnishings and Appliance Stores $599 $1,069 $601 $896 Bldg. Matrl. and Garden Equip. and Supplies $1,457 $1,065 $834 $965 Food and Beverage Stores $2,457 $2,306 $2,368 $2,620 Gasoline Stations $1,519 $1,591 $1,458 $1,385 Clothing and Clothing Accessories Stores $126 $692 $780 $1,220 General Merchandise Stores $850 $1,935 $1,873 $1,824 Food Services and Drinking Places $1,544 $2,253 $1,504 $2,504 Other Retail Group $1,176 $1,853 $1,542 $2,115 Retail Outlets Total $10,336 $17,441 $13,678 $16, Population (b) 76, ,814 1,097,172 7,483,757 Notes: Sales estimates were initially generated using 2014 State Board of Equalization data supplemented with 2012 Economic Census data for Blackhawk. These represent the most recent data available at time of analysis. Taxable sales were converted to total retail sales using factors derived from a comparison of the 2012 Economic Census (which includes nontaxable sales) and 2012 SBOE data for the same retail categories. Market area definition is as described in the demographics analysis. (a) Retail sales have been adjusted to 2015 dollars based on the Bay Area Consumer Price Index from the U.S. Bureau of Labor Statistics. (b) Population from State Department of Finance E-5 reports for incorporated areas, and from Nielsen for the Market Area, assuming a constant rate of growth from 2000 through Sources: State Dept. of Finance (DOF); State Board of Equalization (SBOE), 2014; U.S. Economic Census, 2012; Nielsen Marketplace, 2016; U.S. Bureau of Labor Statistics; BAE,

101 Leakage Analysis for San Ramon and the Market Area Overview of Methodology Retail leakage and injection analysis compares actual retail sales in an area with some benchmark providing a measure of the potential sales generated by that area's residents. If sales levels are below the predicted level, the area may be able to support increased sales, either through the opening of new outlets targeting those leakages or a repositioning of existing outlets through changes in strategy and marketing, merchandise mix, or store configuration such that they could capture a portion of that leakage. A lower-than-predicted sales volume is a strong indicator that consumers are traveling outside the area to shop; thus, the sales are leaking out of the study area. Conversely, if the area shows more sales than would be expected from the area's characteristics, there are sales injections into the study area. Often, an injection of sales indicates that the study area is serving as the regional shopping destination for a broader area. On the other hand, if an area shows substantial leakage, it may be due to the presence of a region-serving retail node outside but near the study area capturing those leaked sales. There are a number of factors that can be used to predict retail demand levels, with the two most important factors being the number of persons in the area and the disposable income available to that population. Additional factors influencing retail demand in an area include household type, age of population, number of workers in the area (i.e., daytime population), tourism expenditures, tenure patterns (owner vs. renter), and cultural factors. As noted above, San Ramon has overall per capita sales well below the Market Area, Contra Costa County, or the Bay Area overall. This alone, however, does not indicate that San Ramon is necessarily losing sales to other locales; for instance, differences in income or other factors could account in part for differing local spending patterns, and shopping patterns may vary due to consumer preferences as well as the retail options available locally. However, San Ramon has strong demographics (e.g., high income levels) that indicate that retail in the City is underperforming compared to the Market Area and the region. To better determine the levels of leakages and injections for San Ramon and the Market Area, BAE defined a larger Benchmark Area with demand characteristics similar to San Ramon and the Market Area. This area encompasses San Ramon itself, the Market Area, and extends out into the remainder of the Tri-Valley Area to include Pleasanton and Livermore. This region overall is similar to the Market Area demographically, and includes a broad array of shopping opportunities such that most demand is likely met within the Benchmark Area itself. In other 85

102 words, the retail demand and supply are largely expected to be in balance. Given this balance and since the demand characteristics of San Ramon are similar to the overall area, the per capita sales by major retail category for the Benchmark Area are used to estimate demand for most of these major categories for San Ramon and the Market Area. For two categories, more conservative benchmarks have been used. First, for gasoline stations, the Contra Costa county per capita sales have been used to provide a more conservative estimate of leakage; the Tri-Valley may be seeing injections of gasoline sales from non-resident regional commuters and travelers traversing the I-580 corridor. Second, the Bay Area per capita sales are used for the clothing and clothing accessories store category; the outlet mall in Livermore and Stoneridge Mall serve a region larger than the Benchmark Area and thus the area likely shows an injection of sales in this category. Both of these adjustment lead to a more conservative estimate of sales leakages from San Ramon and the Market Area. These demand estimates are then compared to the estimated sales by major store category for San Ramon and the Market Area. The results of the leakage analysis are summarized in below in Figure 29 and Table 19, with detail on this analysis provided in Appendix B. San Ramon Leakage Analysis San Ramon shows substantial retail sales leakages overall and in most major store categories, with net leakage of nearly half of potential sales. Overall, for the categories showing leakages, there are over $760 million annually in lost potential retail sales, and for the categories showing injections, only $32 million in annual sales injections/captured sales, mostly in the building materials group, with a small amount of injections for gasoline stations. In absolute dollars, the greatest leakage (over $390 million annually) is in the motor vehicle group, reflecting San Ramon s extremely limited auto and truck sales. General merchandise stores show leakages of an estimated $128 million annually; the only large general merchandise store in the City is Target, and for some San Ramon residents one of the Targets in Dublin is closer to many San Ramon residents. Additionally, the mall stores at Stoneridge and the Costco just outside San Ramon s border in Danville also attract shoppers from San Ramon, with no equivalent outlets in San Ramon itself. Other categories showing leakages of more than 30 percent of sales include home furnishings/appliances, clothing and clothing accessories stores (with 90 percent leakage), food services and drinking places, and the other retail group. Food and beverage stores, which are generally convenience-serving for nearby populations, have sales relatively in balance with San Ramon demand. Retail Trade Area Leakage Analysis Unlike San Ramon, retail sales and resident demand are largely in balance for the overall Market Area, with net overall leakage estimated at only 11 percent compared to 47 percent 86

103 for San Ramon. Even with a much larger retail base, $3.4 billion in estimated annual sales vs. $810 for San Ramon alone, for the categories showing leakage, total leakage is only about $500 million annually, compared to over $750 million for San Ramon. Categories with injections showed overall injections of $62 million per annum. As with San Ramon, the category with the greatest absolute dollar leakage is the motor vehicle group, with Market Area leakage of $182 million; this reflects the likely attraction of area shoppers to the strong automotive sectors in Pleasanton, Livermore, and beyond. Clothing and clothing accessories stores and general merchandise stores show annual leakages of $104 million and $108 million, respectively, as shoppers are attracted to the strong offerings in Pleasanton and Livermore, i.e., Stoneridge and the outlet mall, that represent retail types not present within the Market Area. These two categories are also the only ones with leakages of more than 20 percent of sales, at 43 percent for clothing and clothing accessories stores and 22 percent for general merchandise stores. The only Market Area sector showing strong injections of sales is home furnishings and appliance stores, with injections of $34 million, or 20 percent of total sales. Summary of Leakage Analysis San Ramon shows considerable leakages of sales, indicating that City residents are going outside San Ramon for many types of retail purchases and shopping experiences. Sales for the Market Area are much more in balance with demand, but even for the Market Area overall, some retail types are lacking or underrepresented, leading residents to shop at major retail centers elsewhere that offer these kinds of retail, such as Stoneridge Shopping Center in Pleasanton or the San Francisco Premium Outlets in Livermore. One important point that must be made is that while there is considerable retail sales leakage indicating a robust requirement for new retail in San Ramon, being able to build this retail is dependent upon land appropriate for retail development being available. In San Ramon s case, there is little such undeveloped land, and this capacity constraint will hinder San Ramon being able to stem the tide of sales leaking to other nearby communities. The City will have to depend on the success of City Center in the near term and the redevelopment of existing parcels over the long term. 87

104 Figure 29: Per Capita Retail Sales Leakages by Major Retail Store Category Source: BAE Urban Economics, based on Table

105 Table 19: Summary of Leakage Analysis San Ramon 2016 Total Annual Injection/ Retail Sales in $000 Total Per Capita Leakage Estimated Estimated Injection/ Injection/ as % of Sales Resident (Leakage) (Leakage) Potential Store Category in Area Expenditures $000 Sales Motor Vehicle and Parts Dealers $47,772 $438,944 ($391,171) ($4,992) -89% Home Furnishings and Appliance Stores $46,947 $69,551 ($22,604) ($288) -32% Bldg. Matrl. and Garden Equip. & Supplies $114,172 $87,111 $27,061 $345 31% Food and Beverage Stores $192,511 $204,691 ($12,179) ($155) -6% Gasoline Stations $118,999 $114,237 $4,761 $61 4% Clothing & Clothing Accessories Stores $9,840 $95,587 ($85,747) ($1,094) -90% General Merchandise Stores (d) $66,607 $194,691 ($128,083) ($1,634) -66% Food Services and Drinking Places $121,000 $187,259 ($66,258) ($846) -35% Other Retail Group $92,126 $148,635 ($56,509) ($721) -38% Total $809,976 $1,540,706 ($730,730) ($9,325) -47% Retail Trade Area 2016 Total Annual Injection/ Retail Sales in $000 Total Per Capita Leakage Estimated Estimated Injection/ Injection/ as % of Sales Resident (Leakage) (Leakage) Potential Store Category in Area Expenditures $000 Sales Motor Vehicle and Parts Dealers $920,238 $1,102,078 ($181,840) ($924) -16% Home Furnishings and Appliance Stores $210,237 $174,625 $35,612 $181 20% Bldg. Matrl. and Garden Equip. & Supplies $209,486 $218,714 ($9,228) ($47) -4% Food and Beverage Stores $453,769 $513,927 ($60,158) ($306) -12% Gasoline Stations $313,024 $286,822 $26,202 $133 9% Clothing & Clothing Accessories Stores $136,227 $239,996 ($103,770) ($527) -43% General Merchandise Stores (d) $380,792 $488,820 ($108,028) ($549) -22% Food Services and Drinking Places $443,321 $470,160 ($26,839) ($136) -6% Other Retail Group $364,485 $373,186 ($8,701) ($44) -2% Total $3,431,579 $3,868,329 ($436,750) ($2,220) -11% All sales and leakages estimates are in 2016 dollars. Sources: BAE, based on sources as noted in Appendix B 89

106 Supportable Retail Development Overview of Methodology The supportable retail space analysis here updates the analysis done by BAE in 2009 for its Supportable Retail Space Analysis memorandum of March 2009, based on the same general methodology. This analysis consists of five steps, as described below. Step 1: Estimate Total Potential Sales in San Ramon at Buildout. BAE first estimated the total potential sales generated by San Ramon residents at buildout. The population at buildout in 2035 was taken from the current General Plan. As described above regarding the leakage analysis, sales estimates were largely based on per capita sales from a defined Benchmark Area with demographic and economic characteristics similar to San Ramon but with a broad range of retail types such that resident sales would likely be captured within the Benchmark Area. BAE then estimated retail sales from local employees, based on spending patterns derived from the International Council of Shopping Centers Office-Worker Retail Spending in a Digital Age, The number of jobs in San Ramon at buildout was drawn from Projections 2013, published by the Association of Bay Area Governments (ABAG). This combination of resident- and employee-based demand represents the total potential retail spending in San Ramon. Step 2: Determine Current Sales in San Ramon. These numbers were based on the most recently published taxable sales by store category data from the State Board of Equalization, adjusted to 2016 levels on a per capita basis, as described above in the leakage analysis. BAE did not evaluate demand auto-related retail such as the motor vehicle group or gasoline stations. Step 3: Calculate Potential Additional Sales in San Ramon at Buildout. This step then subtracts the current sales in Step 2 from the total potential sales in Step 1 to estimate the potential additional sales that could occur in San Ramon as it grows and a portion of leaking dollars are recaptured. Step 4: Estimate San Ramon Capture of Additional Potential Sales. San Ramon is unlikely to retain all the potential sales calculated in Step 3, even if sites are available to build substantial new retail development. While local-serving retail can capture as much as 90 percent of all potential sales in a community, region-oriented retail generally experiences lower capture rates, depending on the competitive supply in the area. Shoppers are often willing to travel within a 10-mile radius for regional retail, 90

107 and select their destination according to center design and amenities, store diversity, quality of tenants, availability of parking, value, travel time, and other factors. For this analysis, three capture rates, referred to as the low, medium, and high capture rates, were considered. The rates used were 40 percent, 60 percent, and 80 percent. By applying these capture rates to the potential additional sales estimated in Step 3, this analysis calculates the sales that could potentially occur in San Ramon under each scenario. Table 20 below shows the results of this calculation under low-, medium-, and high-capture rate scenarios. Step 5: Estimate Supportable New Square Feet of Retail. Finally, BAE converted the captured sales dollars from Step 4 into retail square feet by dividing the sales dollars by the industry standard sales per square foot figures for various retail outlets. Sales per square foot assumptions are based on data from a mix of sources, including company 10-Ks filed with the SEC; HdL, a private consulting firm that analyzes sales tax data for local governments in California: and BAE s own experience derived from previous consulting assignments. These findings are also included in Table 20. This analysis accounts for all new non-motor-vehicle related retail space that San Ramon could support under each scenario, starting from 2016 through buildout, assumed for 2035 per the General Plan. It is important to note that the square footages cited below are not net of any vacant or planned or proposed space, including the space under construction within City Center. Findings Table 20 summarizes the findings of the Supportable Space Analysis by store category. Under the low capture scenario, San Ramon could support an additional 579,000 square feet of additional retail space; under the medium capture scenario, the City could support 868,000 additional square feet; under the high scenario, the City could support 1,157,000 additional square feet. However, these estimates do not take into account constraints San Ramon faces to attract retail developers and specialty retailers. Of these potential supportable square feet, City Center will provide approximately 350,000 square feet of new specialty retail and entertainment space. Planned and proposed projects in Dublin such as the IKEA Retail Center and the Boulevard/Dublin Crossing may provide another 635,000 square feet of retail in the Market Area. Not all these projects may be constructed but they indicate that broader market outside of San Ramon may meet this demand, leaving significantly less square feet for San Ramon to fill. 91

108 Table 20: Supportable Square Feet, San Ramon Buildout Population LOW CAPTURE SCENARIO - 40% Capture Rate Business Type Additional Sales (a) Sales per Sq. Ft. (b) Supportable Sq. Ft. (c) Number of Outlets (d) Home Furnishings and Appliance Stores $45,864,880 $635 29,000 1 to 1 Bldg. Matrl. and Garden Equip. & Supplies (e) NA NA NA 0 NA 0 Food and Beverage Stores $76,713,249 $575 53,000 1 to 3 Clothing & Clothing Accessories Stores $117,137,619 $ ,000 4 to 7 General Merchandise Stores $199,608,203 $ ,000 1 to 1 Food Services and Drinking Places $132,905,912 $580 92, to 18 Other Retail Group $113,668,692 $ ,000 2 to 20 Total Sales $685,898, , to 50 MEDIUM CAPTURE SCENARIO - 60% Capture Rate Business Type Additional Sales (a) Sales per Sq. Ft. (b) Supportable Sq. Ft. (c) Number of Outlets (d) Home Furnishings and Appliance Stores $45,864,880 $635 43,000 1 to 1 Bldg. Matrl. and Garden Equip. & Supplies (e) NA NA NA NA Food and Beverage Stores $76,713,249 $575 80,000 1 to 5 Clothing & Clothing Accessories Stores $117,137,619 $ ,000 6 to 11 General Merchandise Stores $199,608,203 $ ,000 2 to 2 Food Services and Drinking Places $132,905,912 $ , to 27 Other Retail Group $113,668,692 $ ,000 3 to 30 Total Sales $685,898, , to 76 HIGH CAPTURE SCENARIO - 80% Capture Rate Business Type Additional Sales (a) Sales per Sq. Ft. (b) Supportable Sq. Ft. (c) Number of Outlets (d) Home Furnishings and Appliance Stores $45,864,880 $635 58,000 1 to 2 Bldg. Matrl. and Garden Equip. & Supplies (e) NA NA NA NA Food and Beverage Stores $76,713,249 $ ,000 2 to 5 Clothing & Clothing Accessories Stores $117,137,619 $ ,000 8 to 14 General Merchandise Stores $199,608,203 $ ,000 2 to 2 Food Services and Drinking Places $132,905,912 $ , to 36 Other Retail Group $113,668,692 $ ,000 4 to 40 Total Sales $685,898,555 1,157, to 99 Notes: (a) BAE estimate based on difference between current sales and potential sales due to recapture of leakage and population/employment growth. (b) Based on company 10-K annual reports files with the SEC, HdL retail store taxable sales estimates, and BAE experience in similar markets. (c) Supportable square feet = Additional Sales times Capture Rate divided by Sales per Sq. Ft. (d) Number of outlets based on typical size ranges for each store type. (e) In the Building Materials and Garden Equipment and Supplies category, total estimated sales per capita in 2035 are lower than current sales per capita because City currently experiences a substantial "injection" in sales from outside San Ramon and/or experiences higher sales associated with non-household and employee spending, such as from local businesses. This injection in sales is not reflected in the sales per capita in 2035 because the demand estimates are based solely on future San Ramon resident and employee spending. Sources: California State Board of Equalization; California Department of Finance; San Ramon General Plan; International Council of Shopping Centers, 2012; Association of Bay Area Governments, Projections 2013; U.S. Census Bureau, 2012 Economic Census; BAE,

109 7. RETAIL VOID ANALYSIS The retail void analysis identifies the regional and national retailers that have a presence or are expanding in the Bay Area that are missing in San Ramon. This information suggests specific retailers that might fill the gaps identified in the retail leakage analysis and which retailers might enter San Ramon to meet future demand. BAE obtained a retail void report from Sites USA, Inc., a national retail data and mapping information services firm, for the area shown in Figure 30 extending along I-680 from Walnut Creek in the north to Dublin and Pleasanton in the south. A listing of missing national and regional formula retailers is presented in Table 21. Of the 24 merchant categories, there are 96 voids in 18 categories. However, one must be cautious in interpreting this list. In the Clothing Apparel category, for example, some of the merchants listed such as dd s DISCOUNTS and Fallas Paredes cater to communities with lower income levels than San Ramon. The Computers Electronics, Department Stores, and Furniture categories show Fry s, Wal-Mart Supercenter, and IKEA as missing retailers but the issue for San Ramon would be a limited number of large sites to locate such retailers that are on the gravity side of the trade area. In the specific case of IKEA, an IKEA is in the planning stage in Dublin. BAE reviewed this list of missing retailers and highlighted in red 59 retailers it believes are most likely to be attracted to San Ramon. These retailers include: Apparel and shoes: American Eagle Outfitters, Avenue, PacSun, Nine West, and Off- Broadway Discount department stores: Stein Mart Fitness/Gyms: Most chains active in Northern California Furniture/Household: Anna s Linens, Ashley Furniture, Bassett, and Ethan Allen Home Improvement: Dunn-Edwards Restaurants Bakery/Coffee Shops/Donuts: Einstein Bros., Dunkin Donuts, It s a Grind, Krispy Kreme, and The Coffee Bean. Restaurants Sandwich: Capriotti s, Charley s Grilled Subs, Great Steaks, Port of Subs, and Which Wich. Restaurants Casual: Carino s, Famous Dave s, Golden Corral, Joe s Crab Shack, Johnny Rocket s Macaroni Grill, Maggiano s, Marie Callender s, McCormick & Schmick s, Pei Wei, Rubio s, Smashburger, and Texas Roadhouse. Restaurants Ice Cream/Smoothie: Ben & Jerry s, Juice It Up!, Orange Julius, Pinkberry, Red Mango, Robeks, and TCBY. Restaurants Pizza: Blaze Pizza, Hungry Howie s, MOD Pizza, Pieology, Pizza Factory, Pizza Studio, and Sbarro. Specialty and Sports Goods: Total Wine & More and Roger Dunn Golf Shops 93

110 Figure 30: Void Analysis Area 94