While the U.S. economy continues to experience a declining housing market, rising fuel costs and a higher unemployment rate, consumers are focused on purchasing necessity rather than discretionary items. Yet, according to the National Retail Federation, retail industry sales for January (which exclude automobiles, gas stations and restaurants) rose 2% during 2007, and 0.1% seasonally adjusted from December.
The slowing U.S. economy can also be witnessed in the Orange County retail market. As cautious tenants cut back on expansion plans, demand for retail space has lessened and resulted in 36,653 square feet of negative net absorption.
Consequently, vacancy levels have increased to 4.4% from 4.1% in the fourth quarter. Overall average asking lease rates for the county did climb 2 cents in the first quarter to $2.65 per square foot.
Despite the increase in average asking lease rates, OC remains competitive in comparison to its neighboring Southern California counties.
Talega Village Center became the newest shopping center to be completed, adding more than 103,000 square feet to San Clemente. OC remains relatively active with the continued construction of 1.5 million square feet of retail developments.
The space under construction includes such projects as Pacific City in Huntington Beach, The Strand, also in Huntington Beach, Anaheim GardenWalk in Anaheim, and Marblehead in San Clemente.
Like many other retail markets, OC is facing the challenges of the economy, but its diversity and the much sought after “Orange County lifestyle” will help ensure its overall strength.
Vacancy Rates
Shop space vacancy levels increased for the fourth consecutive quarter and began 2008 at 4.4%. Although still relatively low, this adjustment in vacancy levels denotes a 150 basis point rise from the 2.9% rate posted in the first quarter of 2007.
With the exception of the North Orange County submarket, all OC submarkets experienced a rise in vacancy.
The most significant increase occurred in Central Orange County, which rose to 3.4% from 2.7% in the previous quarter. This jump is due to an increase of vacant available space concentrated in the submarket’s community and neighborhood centers.
Community centers possess the highest vacancy level, rising to 5.1% from 3.9% recorded in the fourth quarter, while strip centers now hold the lowest vacancy rate of 3.3%.
Net Absorption
OC tenant demand continued to experience a slowdown into the first quarter with 36,653 square feet of negative net absorption. As reflected in its increased vacancy rate, the majority of the negative absorption (69,512 square feet) was seen in the Central Orange County submarket.
Neighborhood centers in South Orange County and in the Central Coast submarkets offset some of this negative absorption with a combined total of 73,241 square feet absorbed.
Average Asking Lease Rates
In the first quarter, the average asking lease rate increased an additional 2 cents to stand at $2.65 per square foot, following a 9 cent increase in the fourth quarter. In the past 12 months, asking rents have increased 5% or 13 cents.
North Orange County exhibits the widest range of lease rates, from a low $1.25 per square foot in strip centers to a high $6 per square foot in power centers, pushing the overall average to $2.85 per square foot.
Now over the $3 mark, the average rate for centers in South Orange County decreased 2 cents to $3.02 per square foot. Power centers continue hold the highest average asking at $2.90 per square foot.
Construction Activity
The first quarter saw the completion of one center totaling 103,391 square feet. This new neighborhood center was the Talega Village Center in San Clemente on Avenida Vista Hermosa.
Two additional centers broke ground this quarter, bringing the total space under construction to 1.5 million square feet. Centers remaining in the construction phase include Anaheim GardenWalk, the Plaza at San Clemente and Pacific City.
Retail centers still slated for construction include the Rancho Marketplace, Fountains at Buena Park and Center Street Promenade which will add an additional million square feet to the marketplace during the next four years.
Data and analysis by CB Richard Ellis Group Inc.
