The real estate boom puts California’s Central Valley on the retail map.
California’s Central Valley has been the country cousin to the Golden State’s glittering coastal communities for generations.
But the region — Stanislaus, Merced, Mariposa, Madera, Fresno, Kings and Tulare counties — is California’s bread basket, a wide-open landscape that is home to most of the state’s approximately 84,000 farms and produces hundreds of commodities, most notably dairy products, cotton, grapes, lettuce and almonds. Agriculture accounts for 21 percent of all income and 25 percent of all employment in the Central Valley, according to the California Farm Bureau Federation.
Although the region’s reputation may grow from its agricultural roots, the recent interest in commercial and residential real estate in the Central Valley — fueled by population spillover from California’s biggest cities — may leave its image in the dust.
“What’s going on is a population shift that’s been going on for three or four years,” said Stephen Fisher, retail real estate agent for CB Richard Ellis in Fresno. “Things are so expensive [elsewhere], and the valley still represents a reasonably decent buy, both from a residential and investment standpoint. What we see is people relocating from [coastal cities] and buying a bigger and better house for half the price here.”
During California’s development in the 19th and 20th centuries, the Central Valley attracted largely blue-collar workers, a demographic that remains strong in the region. The average household income in Fresno was $40,473 in 2003, according to the U.S. Census Bureau. Four of the county’s top 12 employers are food-processing companies, the local Economic Development Corp. reported.
Because of its socioeconomic makeup, the region has been somewhat ignored by upscale housing developers, residential buyers and major retailers — until recent years.
The nationwide housing boom, which ramped up in 2001 and is only now leveling off, didn’t miss the Central Valley.
“The housing market has gone crazy in the last four years here,” said John B. Hans, a commercial and industrial real estate agent for Fortune Associates in Fresno. “It’s gone up 20 to 25 percent.”
And though most residential real estate brokers in the area agree that sales are leveling off — 38,300 homes sold statewide in January, down 27.5 percent from 52,800 in December and down 9.5 percent from 42,300 in January 2005 — the housing market in the Central Valley is still bustling.
“We’re still selling a house a day,” said David Crisp, a residential real estate agent and novice developer in Bakersfield. “I saw 46 percent price increases last year. This year, it will be 15 to 20 percent increases. Houses are sitting on the market longer because their sellers are trying to sell for the top, top dollar. That’s over.”
Despite comparatively higher prices, buying in the Central Valley remains far less expensive than buying near the coast. “The area is still the second most affordable in California,” said Donna Waddel, vice president of market development at Guarantee Real Estate in Fresno.
According to statistics from the National Association of Realtors and the California Department of Finance, the median sale price of single-family homes in Central Valley cities is about half what it is in San Francisco and San Jose, and roughly a third less than that of cities in Southern California.
The median home price in Tulare County in mid-2005 was $190,000, an 86 percent increase from 2000. Fresno, the Central Valley’s most populous city, with an estimated 464,727 residents, according to the California Department of Finance, has seen the highest price hikes in residential real estate: The average home price in mid-2005 was $243,000, up 129 percent from 2000.
Home buying is, of course, a byproduct of population increase. Fresno County’s population grew by 67,116 residents between 2000 and July 2004, according to the Census Bureau, and the agency named neighboring Madera County among the 100 fastest-growing U.S. counties, with a population growth rate of 3.9 percent between 2003 and 2004, when the population hit 138,951.
The Central Valley communities of Bakersfield, 90 minutes north of Los Angeles, and Stockton, 60 miles east of San Francisco, are becoming a draw for commuters.
“Even though growth has gone up dramatically, it’s still less expensive [than Los Angeles and San Francisco],” said Scott Manson, senior vice president of apparel and general merchandise manager at Gottschalks, the largest department store chain in the Central Valley, with 63 units. “I think, for right now, the growth of the Central Valley will continue, based on longer commute times, but a better quality of life.”
Commercial real estate costs in California have risen just as sharply as residential costs, and, as in the residential market, the high prices are driving business owners out of coastal regions and, in many cases, toward the Central Valley.
Prices in L.A.’s most luxury-minded shopping districts range from around $5 per square foot on Melrose Avenue to around $25 per square foot on Rodeo Drive. And in San Francisco, asking commercial rents in the central business district hit $28.86 per square foot in October 2005.
In Glendale, an L.A. suburb with population and income statistics comparable to Fresno’s, prime retail space costs about $2.75 to $4 per square foot per month.
In contrast, commercial rents in “reasonably vibrant shopping districts” in Fresno start at about $1.20, said Fisher of CB Richard Ellis. “In newer areas like Riverpark and Fig Garden Village [two major shopping centers], rents can be anywhere from $2 to $2.50 per square foot.” Commercial leasing rates in the most coveted parts of up-and-coming Madera range from $1.25 to $1.65, said Fisher, adding that Visalia rents are $1.80 to $2.
Visalia is the town where most new retailers have been opening in Tulare County, said Paul Saldana, president and chief executive officer of the Tulare County Economic Development Corp. “In the last couple of years, we’ve had well over 2 million square feet of retail commercial space that’s been added to the county, varied in size and type,” he said, listing Home Depot, Target and Kohl’s among the recent arrivals.
Saldana added that there are several projects slated for development in the city of Tulare, including a new Wal-Mart. “Even our smaller communities are gaining from some of the major retailers looking at the buying power that comes from the growth of the population.”
Kohl’s, the Wisconsin-based department store chain, has staged one of the most aggressive infiltrations of the region in recent years, opening 28 stores in California since March 2003, including Central Valley locations in Fresno, Modesto, Turlock, Stockton and Visalia. On March 2, Kohl’s opened a new store in Manteca, just south of Stockton.
“We now have over 70 stores [in California],” said a company spokeswoman. “We expect to be more aggressive with our expansion plans in the Southwest over the next five years, particularly in California. We plan to open 80 to 85 stores this year, ultimately reaching over 1,200 stores by 2010.”
Zinkin Development, based in Fresno, is making room for the retail newcomers. Company owner DeWayne Zinkin spearheaded four recent and upcoming multiuse projects in the Central Valley, in collaboration with Fresno real estate firm Commercial West Associates.
Among the highlights is a multiuse center located in what Zinkin calls the “golden loop,” an as yet unnamed, horseshoe-shaped, 26-acre parcel of land in Fresno. The project will include 250,000 square feet of retail space across the “loop” from a 133,247-square-foot office building. Construction begins “in the next 60 days,” said Zinkin. Retail tenants have yet to be announced.
Also on Zinkin’s résumé is the Riverview Shopping Center, a $15 million retail project in downtown Fresno. The outdoor complex features 120,000 square feet of retail space and specialty store tenants such as She She, which carries better young contemporary brands Sweetees and Rock & Republic, and Angelica Haley, which stocks Italian designer apparel from Blumarine, Prada and Gucci.
Zinkin is building a third shopping center (as yet un-named) in Fresno with 50,000 square feet of retail space. It is scheduled to open in the next 10 to 12 months, he said. Retail tenants have yet to be announced.
The developer is also making final plans for a shopping center in Madera. The project will have 50,000 square feet of retail space anchored by a major department store. Zinkin said he was talking to “the biggest retailers in the country,” adding that construction on the shopping center will begin in the next six months.
All this expansion in the region, however, is not likely to come without costs.
Leland Shapiro, a professor in the agriculture and natural resources department of Pierce College in Woodland Hills, Calif., said that agriculture eventually will be pushed out of the Central Valley, creating a trade imbalance and forcing the U.S. to import the commodities grown in the region.
“When building homes, you often destroy the part of the land where the soil comes off the rivers,” Leland said, “and that’s the land best suited to growing the best crops.”
Irrigation also poses problems. “It takes a lot of water to grow food, but so many people are moving into California, there’s competition for the water,” Leland said. “But if you take water away from the farmer, you have to pay for [food] as an export.”
Developers eyeing the Central Valley may meet some resistance from environmental groups when encroaching on existing farmland, though frequently the farmers themselves are selling to developers for top dollar.
And if growth continues here at even a fraction of its current pace, retailers would be wise to expect an increasingly savvy consumer to surface in the Central Valley communities.
“The local customer is becoming more sophisticated,” said Manuela Frignani-Perkins, co-owner of Angelica Haley at Riverview Shopping Center, which opened in 2004. “However, it takes a lot of education. You have to nurse your clientele and educate them about the brands.”
Metropark, an 11-door young contemporary chain owned by Hot Topic, opened in Fresno’s Fashion Fair mall in December. “There happens to be a lot of disposable income in Fresno,” said Renee Bell, vice president and general merchandise manager. “We had an inclination that they would be hungry to shop.”
Helena Etchart-Tin opened her third women’s apparel specialty store, What’s Up Europe? Exclusive Designs, in Visalia last year. The retailer, who was raised in Milan, agreed that the Central Valley consumer is evolving.
“People [here] who really go to events used to go to buy [apparel] in San Francisco. They never bought in Visalia,” she said. “Then it changed a lot, starting a few years ago. This area is growing so much and it’s changing the type of life that is here — it’s an incredible environment.”
Sweet Home California
Median Sale Prices for Single-Family Homes in 2005
San Francisco: $715,700
San Jose: $744,500
Mill Valley: $874,508
Central Valley Cities
Long Beach: $529,000
West Hollywood: $556,964
San Diego: $604,300
Santa Monica: $827,729
Beverly Hills: $1,323,721