While still healthy, the Orange County retail market posted relatively flat numbers across the board in the third quarter.
After negative net absorption in the second quarter, increased demand for retail space drove positive net absorption of 3,459 square feet in the third quarter.
This kept the vacancy rate stable at 3.5%. Conversely, the average asking lease rate climbed two cents to $2.49 per square foot.
The higher lease rate places the OC market well above its Southern California neighboring counties.
More than 3.5 million square feet of retail space is under construction and includes Orchard Hills Village Center in Irvine, The Strand in Huntington Beach and The District in Tustin.
Anaheim GardenWalk near the Disneyland Resort, at 440,000 square feet, is one of four retail centers to break ground in the third quarter.
Other projects, such as the second phase of the Commons in Irvine and Imperial Promenade in La Habra, are planned.
Consumer spending hasn’t risen much with higher energy costs and interest rates. Change in the retail sector are expected. Centers of the lifestyle type should continue to thrive. More traditional regional malls with empty department stores will need to re-invent themselves with more of a lifestyle feel. While Federated Department Stores Inc.’s buy of Macy’s resulted in store closures, retailers are entering the market.
Britain’s Tesco PLC is one of the latest retailers opening stores in OC and across Southern California.
Vacancy Rates
The overall vacancy rate stayed steady in the third quarter at 3.5%. While North and South counties saw vacancy declines, the other three markets had higher vacancy rates. North County has the tightest rate at 2.2%. South County now carries the highest rate of 4.4%.
Specialty centers continued to have the highest vacancy level at 4.8% in the third quarter.
Strip centers, at 2.7%, and power centers, at 3.2%, hold the lowest vacancy rates.
Net Absorption
After a quarter of negative absorption, the third quarter saw a small yet positive 3,459 square feet of net absorption.
North County had the highest level of demand with 18,692 square feet of positively absorbed space. Central County, on the other hand, had negative absorption of 7,865 square feet, which was concentrated in its strip centers.
Overall, community centers posted 17,558 square feet of negative absorption.
Neighborhood centers had more demand with 23,113 square feet of positively absorbed space.
Lease Rates
The average asking lease rate rose two cents in the third quarter to end at $2.49 per square foot.
The figure is 6% higher than a year earlier up 1% from the second quarter. West County has the widest range of rates, from a low $1 per square foot at strip centers to a high of $6 per square foot at neighborhood centers.
The highest rates also hit the $6 mark in North and Central counties and at the central coast.
Construction
The third quarter saw completion of the 137,074-square-foot Target at the Irvine Spectrum Center.
Bella Terra in Huntington Beach completed renovation of the 777,000-square-foot regional center.
Four centers totaling 750,707 square feet broke ground in the third quarter. Among them: Anaheim GardenWalk in Anaheim, Talega Village Center in San Clemente, the Terrace Shops in Ladera Ranch and the La Habra Retail Center in La Habra.
These projects brought construction to 3.6 million square feet.
Retail centers still slated for construction include The Commons’ second phase in Irvine, Orangefair Marketplace in Fullerton and Imperial Promenade in La Habra.
They stand to add 400,000 square feet to the marketplace in the next four years.
Analysis provided by CB Richard Ellis Group Inc.
