Determinants of vacancy in retail power centers in Sacramento County: when local governments should intervene in declining shopping centers and identifying desirable economic development incentives

On January 31, 2018, the Sacramento County Board of Supervisors (Board), during a workshop, focused its attention on retail shopping centers experiencing chronic vacancies. In 2017, another major big-box retail closure in a shopping center prone to big-box departure sparked the Board’s discussion of this issue. The Board’s interest in declining shopping centers within Sacramento County (county) is the impetus of this Master’s in Public Policy and Administration thesis. This thesis employs a nested research design using both quantitative (regression analysis) and qualitative (interviews) methods. The regression analysis attempts to answer the research question: What causes vacancies in power centers located within Sacramento County? The findings of this portion of the study show location to competition and socioeconomic characteristics of neighborhoods near shopping centers highly influence vacancies. Specifically, when competition increases by one retail power center within one to three miles, the vacancy rate of a retail power center increases by 26 percent. The competition variables within 3-5 miles and within 8-10 miles have a positive effect on lease rates, driving vacancy rates down by 14 percent and 8 percent respectively. Household income above $200,000 decreased vacancy rates by 6.9 percent and having a higher education degree decreased vacancy rates by 3.25 percent. The regression analysis provides information, given available data, about what contributes to vacancies in Sacramento big-box retail centers, but this thesis also aimed to understand qualitatively what the county can do, if anything, to help these shopping centers with high vacancy rates and in decline or at risk of decline. The qualitative research question is: What can Sacramento County do, if anything, to help shopping centers in decline or at risk of decline become profitable again? Whether a local government intervenes into a declining shopping depends on the consideration of several factors, including retail market conditions as well as ownership and shopping center characteristics. The decision to provide incentives requires a determination of whether the incentive will help improve the outcome of the property over the long term, which requires a look at retail market conditions, owner needs, and property needs. Identifying the needs of owners and the property are important, but a local government must also evaluate its own priorities and identify its financial and human resource capacity to provide an incentive. The most important incentives for developers are certainty of time and cost, but economic incentives help also, when it determines the success of a project. The recommendations presented in this thesis take into consideration factors that the county can exercise control over and that can help improve economic development activities in the county in order to address the broader issue of declining retail shopping centers.