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Laguna Hills
Thursday, Mar 28, 2024
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Retail Market Marks Healthy Q1

The retail market’s favorable start to the year included multiple positive changes to its market fundamentals. Overall retail vacancy remained unchanged in the first quarter at 3.8%, the lowest since it was 2.8% in 2007, illustrating the region’s demand and elasticity.

Average monthly asking lease rates grew 6 cents to $2.20 per square foot and 8 cents from a year earlier to the highest rate in the region since the third quarter of 2013. Occupancy gains totaled 337,188 square feet, with growth in nearly every submarket. Average rates increased in three submarkets, the biggest jump in Central Orange County, where rates grew by 11 cents to $2.07 per square foot. South Orange County followed with an increase of 8 cents to $2.40 per square foot, while North Orange County increased 3 cents to $1.96 per square foot. Central Coast and West Orange County rates dropped, ending at $2.74 per square foot and $2.21 per square foot, respectively.

Power centers’ asking rates not only increased the most quarter-over-quarter but reached a historic high of $3.04 per square foot. Specialty centers followed, increasing to $2.53 per square foot, followed by community centers, with the only decrease, ending at $2.24. Neighborhood centers increased by 5 cents to $2.09, and strip centers increased by 8 cents to $2.07.

Vacancies

The county’s overall retail vacancy remained unchanged at 3.8%. The last time vacancy was that low was the third quarter of 2007, before the recession began. Three of the county’s five major submarkets decreased in vacancy, the biggest drop in South Orange County, with an overall decrease from 3.4% to 2.8%. The Central Coast submarket’s vacancy shrank from 3% to 2.6%, followed by Central Orange County, which dropped from 5% to 4.9%. Increases in West Orange County and North Orange County were from 3.1% to 3.9% and from 3.4% to 3.7%, respectively. Much of West Orange County’s jump in vacancy was due to the addition of Pacific City.

Only one of the county’s five retail center types increased in vacancy—specialty centers—which grew by 2.6% to 4.3%.

The largest decrease in vacancy occurred in strip centers, which shrank from 7% to 6.7%. Community centers, neighborhood centers, and power centers’ vacancy all decreased, ending at 3.6%, 4.4% and 2.1%, respectively.

Absorption

The retail market’s 337,188 square feet of positive net absorption marked the third consecutive quarter of occupancy gains. Central Coast accounted for 147,641 square feet, followed by West Orange County, with 117,587 square feet. South Orange County reported an additional 98,234 square feet, along with Central Orange County, with 11,195 square feet. The only submarket with occupancy losses was North Orange County.

The Orange County market’s sole major project under construction is the 400,000-square-foot The Source at Beach in Buena Park, which should be delivered this year. An additional eight minor projects are in development, including the Water Grill restaurant in Costa Mesa. Large-scale projects fill the development pipeline, including a 300,000-square-foot center in Anaheim, Phase II of the San Clemente outlets.

Analysis by CBRE Research

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