A strong holiday season and improving employment levels helped inject optimism into the retail market in the first quarter, and that’s bolstered fundamentals for the retail real estate segment.
The overall retail vacancy rate in Orange County improved to 5.8% in the first quarter, as increased demand led to 101,579 square feet of positive net absorption. The majority of this absorption was concentrated in South Orange County, particularly in its community centers.
The rise in activity has yet to translate into higher rents. The average asking lease rate in OC continued to decline in the first three months, to $2.32 per square foot.
Construction of new retail space here is minimal. Some development is starting to take place involving projects of less than 50,000 square feet in space, but new construction of larger centers won’t get going until the retail recovery gains additional momentum.
No new centers have been added to the local retail inventory since the fourth quarter of 2008, though renovations have been made to enhance and improve existing centers. Renovation work has begun at Bella Terra in Huntington Beach, as the regional center adds 152,000 square feet.
Once-planned development projects remain on hold. Pacific City, a specialty center located in Huntington Beach, halted construction of the 191,000-square-foot center in the beginning of 2010.
Vacancy Rates
The overall vacancy rate for OC retail space decreased in the first quarter and now stands at 5.8%. This reflects a 3% decrease from the 6% vacancy rate recorded in the fourth quarter of last year, though it is still 21% higher than the 4.8% rate witnessed a year ago.
The North and South OC submarkets carry a vacancy rate of 5%, representing the lowest vacancy rates in the region. Vacancy levels in West OC stand slightly higher at 5.5%, while the Central Coast submarket ended the first quarter with a rate of 5.7%.
Central OC carries one of the highest vacancy rates of 7%, concentrated primarily in its community centers.
Community centers track the highest vacancy level out of all the retail center types in the county: 6.2%. Strip centers have the lowest vacancy rate, at 5.4%.
Net Absorption
Tenant demand picked up in the first quarter, resulting in 101,579 square feet of positive net absorption. The bulk of the quarter’s positive absorption was seen in the South OC submarket, which recorded 103,430 square feet.
Both West and Central OC had positive absorption, posting a combined total of 27,471 square feet. The Central Coast was relatively flat with negative absorption of 1,963 square feet, while North OC accounted for 27,359 square feet of negative movement.
Average lease rate dropped by 3 cents to $2.32 per square foot in the first quarter. That put asking rents 1% below last quarter, yet 5% under levels seen a year earlier.
West OC is tracking the widest range of lease rates, from a low of $1 per square foot to a high of $6.50 per square foot, resulting in an average asking rent of $2.18 per square foot.
Specialty centers in Orange County—once near the $4 mark—continue to command the highest average asking lease rate at $3.45 per square foot, which is down from $3.52 recorded just one year ago.
Analysis provided by CBRE Research.
