Downtown rents grow with demand

By: PAUL EAKINS - Staff Writer | Saturday, February 17, 2007 11:24 PM PST ∞

ESCONDIDO ---- Barber Andy Granger recalls a much different downtown Escondido when he started his business 16 years ago.

Storefronts were boarded up, few people went downtown and businesses weren't eager to locate there, he said last week. In those days, rent was cheap on Grand Avenue.

Times have changed.

"Rents have quadrupled since I've been here," said Granger, who owns Andy's Barber Shop at 123 W. Grand Ave.

The higher rents are due in part to the downtown's renewed popularity. An effort to revitalize Grand Avenue and the surrounding streets in recent years has created a vibrant art scene, brought in high-end restaurants and filled most commercial spaces.

"For the first seven or eight years I was here, it was really in a downward spiral," Granger said. "And in the last six or seven years, it's really on a comeback. It's really an enjoyable environment to work in."

In recent months, Escondido's downtown has lost a handful of businesses, and others have moved to smaller spaces.

But most downtown business owners, real estate brokers and those whose livelihoods depend on the success of Grand Avenue said rents there are reasonable. Some said they even had found better deals downtown than in the city's other business corridors.

Rents rising

When Granger opened his business 16 years ago, he paid between 30 and 35 cents per square foot for his 800-square-foot commercial space, he said. Now, he pays $1.25 per square foot, which amounts to $1,000 a month.

Although the rising rent hasn't caused Granger to think about moving, he said increasing costs are a concern for any business owner.

They certainly were for John Paul Scirica, owner of The Grand Magic Shop at 252 E. Grand Ave.

Last year, Scirica moved his business from a 900-square-foot space at 130 E. Grand Ave. to a 500-square-foot location at 252 E. Grand Ave., reducing his rent from $1,500 to $550.

The rent had made it too hard for him to make ends meet, Scirica said, because downtown doesn't get enough shoppers.

"I don't think downtown has the foot traffic it needs, and landlords are trying to raise rents too much," Scirica said. "I think in certain spots, rents are very reasonable, and in others rents are astronomical."

But the move to downtown, even to his first location, was still a step up for Scirica, he said. Before moving downtown, Scirica's shop was on Escondido Boulevard, where he paid $1,300 per month for 600 square feet, he said.

Kathy Rubesha owns two downtown properties, including a recently vacated site at 262 E. Grand Ave., where Mickey's Art Supplies and Studio had opened in March but closed just a few months later. Rent at that location was around 50 cents per square foot in 1996, then $1.25 per square foot about three years ago and is $1.45 per square foot now, she said.

Downtown rents have gone up, but not unreasonably so, Rubesha said.

Mike Peters, president and chief executive officer of the Bank of Escondido, agreed.

"I think it's still a bargain downtown," Peters said.

He said business problems downtown aren't related to high rents, but to a lack of commercial space and parking.

"I know businesses that would come downtown if they could get 10,000 square feet, but there's not enough space available," Peters said.

Paying more elsewhere

Tom Crowley is a real estate broker for McMillin Realty who said he works as the middle man between commercial lessors and lessees. He said rents downtown aren't out of control. Crowley said he has seen recent lease deals with rent set as low as 90 cents per square foot, while rent at other locations has been as high as $1.85 per square foot.

Cities with downtowns comparable to Escondido's are rare, he said, but in somewhat similar areas such as Del Mar or Carlsbad, commercial rents cost from $3 to $4 per square foot. Of course, rents there are inflated because of the coastal location, he said.

A recent look at commercial properties advertised on real estate Web sites shows downtown San Diego commercial spaces going for $3.50 to $4 per square foot in some cases, while a former restaurant space on Highway 101 in Encinitas is advertised at $3 per square foot. Farther inland, a commercial space in Mission Hills, just east of Old Town San Diego, was advertised at $2 per square foot.

Commercial rent rates largely are determined by the amount of business an area takes in, he said.

"Rent per square foot is driven by sales per square foot," Crowley said.

Tony Marashi, who bought A Delight of France restaurant at 126 W. Grand Ave. in September, previously owned a restaurant in downtown San Diego and said Escondido's downtown rents are "much more reasonable."

In Escondido, Marashi pays 40 to 45 percent less for rent than he did in San Diego, and he got about 1,000 extra square feet out of the move, he said.

The right fit

The key to opening a successful business in downtown Escondido, Crowley said, is to open the right kind of business. Businesses such as banks and attorneys offices can afford higher rents, while businesses such as restaurants often do such steady business that they thrive there, too.

But some businesses, such as certain retail stores or art galleries, may not benefit from being on Grand Avenue, he said.

"The problem for some tenants is not knowing whether they belong there, and then going there and finding out that they don't," Crowley said. "For some users, it makes no sense to be there because there's not enough foot traffic for them."

Over the last several months, a handful of businesses have closed shop on Grand Avenue. In addition to the art store, the well-known Lillian Berkley Gallery and Sassy Suds soap store also have closed.

Lillian Berkley owner Susan McLaughlin said at the time that she wasn't closing because of rent but because of a career change. The former owners of Mickey's Art Supplies and Studio and Sassy Suds couldn't be reached last week.

Jo Ann Case, economic development manager for Escondido, said tougher economic times, with high gas prices and more expensive rent for homes and businesses, may be to blame for business being down and owners closing their doors.

"One thing that happens when sales start to slow is people rethink their business model," she said.

Other businesses, meanwhile, are moving into downtown.

Imagination, a pop culture-oriented gift store, this year moved out of its East Valley Parkway location to an 1,800-square-foot shop at 135 E. Grand Ave.

According to the Downtown Business Association, downtown has maintained a 2 percent vacancy rate over the last two years.

John Nigro, owner of Vineyard Travel at 120 W. Grand Ave., moved his business from East Valley Parkway almost a year ago. He said it had paid off in cheaper rent and a more exciting downtown location. Although Nigro has less space now, he pays half of what he did at his previous location, he said.

"I think the right businesses ... can do very well down here," Nigro said.

Waiting it out

And in a few years, downtown businesses may do very well indeed, said Crowley, the real estate broker.

City leaders and downtown businesses have been banking on new residential developments and a hotel planned in the city center to boost the downtown economy.

Up to 1,000 new residential units, mostly condominiums and town houses, are expected to be built in the area over the next several years, city officials have said.

In addition, the Escondido City Council last year approved the construction of a 196-room Marriott hotel on a 1.3-acre parking lot between City Hall and the California Center for the Arts, Escondido. Construction on the hotel is expected to start soon and be completed sometime next year.

Crowley said the hotel alone ought to bring about 100 more shoppers and diners downtown each day. City leaders have said that the residential projects under construction in the area also will create a more vibrant urban lifestyle in downtown Escondido.

"The hotel, of course, will have a profound effect on all of Grand," Crowley said. "I think we'll see two or three more restaurants on the block at some point and some tourist-related activities."

Scirica, the magic shop owner, said that is what he is hoping for and was one of the reasons he moved his business to Grand Avenue.

"I think maybe in three years, this is going to be the place to be," he said.

Contact staff writer Paul Eakins at (760) 740-5420 or peakins@nctimes.com.

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