A slowing market hasn’t halted land sales and home construction at Dana Point’s Strand at Headlands along Pacific Coast Highway, one of the county’s most expensive coastal developments.
But it has stopped the Strand’s retail development from moving forward, at least for the time being.
Developers planning an upscale set of shops, offices and restaurants have opted not to start construction at the Strand.
Instead, they are looking to sell their interest in the project, which is slated to hold 35,000 square feet of space.
The asking price for the 1.5-acre site is $8.4 million,far less per acre than the home lots that have sold in the past two years at the Strand, which holds 118 beachside lots, and a few homes under construction.
Some of those home lots, each of which runs about one-fifth of an acre, have traded at prices close to $30 million per acre in the past few years.
Brokers from the Anaheim office of CB Richard Ellis Group Inc. are marketing the retail portion of the 121-acre Strand, which is set to include a park and a boutique hotel.
“New construction is simply not prudent right now, given the current economic environment,” said Steve St. Clair, of Irvine-based development company St. Clair Co., which owns the retail site in a venture with Corona del Mar-based Meyers Development.
The property, which is fully zoned for stores, is being marketed to “an investor who is looking for a longer-term strategic play,” according to St. Clair.
Far From Unusual
The decision to halt the building of shops at the Strand is far from an anomaly these days in Orange County.
No retail projects broke ground or opened in the first quarter. Only about 100,000 square feet of projects still are under construction in OC, according to brokerage data.
A year ago, more than 1.5 million square feet of projects still were being built. As recently as late 2006, more than 3.5 million square feet was under construction, including megaprojects such as the District at Tustin Legacy and Anaheim GardenWalk.
Chalk up the slowdown in development to a lack of consumer confidence, which is translating to slow sales, said Philip Voorhees, senior vice president of retail investments for CB Richard Ellis.
Retail sales in OC are projected to run about $35.5 billion this year and optimistically could increase to $36.6 billion in 2010, according to CB Richard Ellis brokerage data. Sales here peaked in 2007, with nearly $40 billion.
This year’s projected drop could prove to be steeper. Costa Mesa city officials are reporting that retail-driven sales tax revenue, the city’s largest single source of revenue, will be down more than 12% for the 12 months through this July, compared to a year earlier.
With the drop in demand, “you’re starting to see an unwinding of rents,” Voorhees said.
The retail market is seeing asking rents off about 6% from their recent peak of six months ago. Landlords on average now are asking for rents running about $2.61 per square foot, although effective rents are even lower.
While development has largely been put on hold, there’s plenty of empty space available for prospective tenants.
Close to 2 million square feet of specialty center space has come back on the market locally thanks to the bankruptcies of big retailers such as Circuit City Stores Inc. and Mervyn’s LLC, according to Voorhees.
The local retail market’s vacancy rate now runs about 7.2%, up from 4.2% a year ago. For big specialty retailers, the vacancy rate has jumped from under 4% to nearly 11% in the past year.
Along with Dana Point’s Strand development, other big South County retail projects being postponed include the proposed outlet center for San Clemente’s Marblehead Coastal project, which is being led by Craig Realty Group.
