Recent retail sales were energized by a strong back-to-school shopping season in the third quarter, though overall consumer spending continued to be tempered by the uncertain political climate and stagnant employment conditions.
Retail and food-service sales increased in August by 0.9% from the previous month and are 4.7% above sales recorded in August 2011, according to the U.S. Census Bureau. Total retail sales for the third quarter were up 4% from the same period a year ago.
Retail sales continue to have the ups and downs of macroeconomic conditions, and the commercial real estate market also mirrored those trends. The overall vacancy rate for retail space in Orange County began to move downward, ending the quarter at 5.8%.
The lower vacancy level was a result of increased demand as the market saw 82,230 square feet of positive net absorption in the third quarter. The majority of this was concentrated in the Central Coast and West OC submarkets, particularly in power and community centers. Asking lease rates declined despite the uptick in activity during the quarter, placing the average rent for the county at $2.27 per square foot.
Scarce Development
Retail development remains sparse in general, though construction began on a 460,000-square-foot retail destination in Buena Park. The regional center, named The Source, will include shopping, dining, and entertainment and is due to complete in October 2014.
The average asking lease rate declined by 6 cents in the third quarter, to $2.27 per square foot.
This recent decrease—which follows a slight 1-cent uptick last quarter—places rents 5% under the average rent seen in the third quarter of last year. It also places rents nearly 3% below last quarter’s rate of $2.33 per square foot.
West OC was 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 unchanged average asking rent of $2.10 per square foot.
Asking rents for centers in the Central Coast recorded a significant increase in the third quarter despite the countywide decline, adding $0.14 to $3.22 per square foot. Specialty centers in OC, which were once near the $4 mark, continued to command the highest average asking lease rate at $3.45 per square foot, down from $3.48 recorded last quarter.
Retail Vacancies
The overall vacancy rate for OC retail space decreased in the third quarter to 5.8%.
The Central Coast submarket carried a vacancy rate of 4.3%, representing the lowest vacancy rate in the region. North and West OC both tracked at 5.6%, while South OC stood at just under 5.3% by the end of the quarter. The Central OC submarket had a vacancy rate of 6.9%, continuing to possess the highest level in the county.
Strip centers—of all the retail-center types in the county—tracked the highest vacancy level at 7.1%. Power centers had lowest at 5.2%.
There was sluggish demand in the second quarter, but recent tenant activity improved, resulting in 82,230 square feet of positive net absorption in the third quarter.
Central Coast
The bulk of the quarter’s positive absorption was seen in the Central Coast submarket, which recorded a total of 129,262 square feet of net absorption. This positive absorption was offset by 52,247 square feet of negative net absorption in South OC.
North OC also had some negative movement with 5,081 square feet of negative net absorption. West OC posted 8,886 square feet of positive net absorption, while Central Orange County was relatively flat with positive absorption of 1,410 square feet.
Renovations, Expansions
Renovations and expansions designed to enhance and improve existing centers are occurring in the market, though no new centers have been added to OC’s retail inventory in four years. Such is the case at Bella Terra in Huntington Beach, where renovation work completed in the third quarter and about 152,000 square feet was added. Other formerly active development projects remain on hold or have been frozen indefinitely.
Analysis by CBRE Group Inc.
