While the credit crisis looms over the nation, retailers continue to feel the ups and downs of the souring economy.
The spending changes consumers have made to adjust to this economic downturn can also be seen in the retail property markets. The Orange County retail market saw a 14% increase in the overall vacancy rate, which stood at 4.8% in the third quarter.
There was 179,111 square feet of negative absorption recorded last quarter, bringing the year-to-date total to a relatively flat 1,631 square feet. Despite the slowdown, the average asking lease rates for the county continued to rise. At $2.79 per square foot, the average asking rent gained 8 cents last quarter, yet remains competitive in comparison to its neighboring Southern California counties.
Following the grand opening of Anaheim GardenWalk this year, there were no new centers added to the inventory in the third quarter. Because many developers have put plans on hold, construction in OC has gradually slowed down since last year. There are currently 372,000 square feet of new retail space in the construction phase, none of which broke ground last quarter. Marblehead, the 600,000-square-foot specialty center in San Clemente that began the early phases of construction last year, has been put on hold.
Like many other retail markets, OC is facing the challenges of the economy, but its diversity and the much sought after “OC lifestyle” could help ensure its overall strength.
Vacancy Rates
Vacancy rates for retail shop space increased in the third quarter. The overall vacancy rate was 4.8% at the end of the third quarter, denoting a 14% increase from the second quarter and a 37% rise from 3.5% in the third quarter of last year.
The Central County and the Central Coast submarkets saw rises in vacancy last quarter, while rates in North, South and West counties minimally declined. The Central Coast reported the greatest rise in vacancy, increasing to 6.5% from 4.3% in the previous quarter. Of the center types, specialty centers have the highest vacancy levels, rising to 9.8% from 5.6% recorded in the previous quarter, while power centers,or a retail center dominated by several large anchors,continue to hold the lowest vacancy rate of 2%.
Net Absorption
Decreased demand coupled with store closings resulted in 179,111 square feet of negative absorption. Although OC saw absorption last quarter,mainly due to 34% preleased shop space at the newly constructed Anaheim GardenWalk,the year-to-date total was brought to a relatively flat 1,631 square feet
of absorption. Both Central County and Central Coast combined, which also
saw increased vacancy levels, recorded more than 200,000 square feet of negative absorption.
Average Asking Lease Rates
In the third quarter, the average asking lease rate increased an additional 8 cents to stand at $2.79 per square foot, following a 6 cent increase in the second quarter. During the past 12 months, asking rents have increased 10%, or 25 cents. Central Coast has the widest range of lease rates, from a low $1.10 per square foot to a high $6 per square foot, pushing the overall average to $3.69 per square foot.
Construction Activity
Following the second quarter’s completion of Anaheim GardenWalk and The Strand in Huntington Beach, OC’s retail construction activity has slowed considerably. In addition to no center completions in the third quarter, no new centers broke ground or started construction last quarter. Additionally, construction of Marblehead, a 600,000-square-foot specialty center in San Clemente, was halted. This brings the total amount of retail space under construction to 371,988 square feet. Retail centers still slated for construction include the Rancho Marketplace, Fountains at Buena Park and Center Street Promenade.
Analysis provided by CB Richard Ellis Group Inc.
