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Orange County’s retail market has held up better than other parts of commercial real estate during the past year. But there are signs the 85 million square feet of shopping centers here could be in for a rough year.
“Retail is a focus (this year),” said Jeff Moore, senior managing director of OC operations for CB Richard Ellis Group Inc. “The story in 2008 was the office market,the worst of the damage has been done there. So far, retail has weathered the storm better.”
The fourth quarter displayed some worrisome signs for the area’s mall and shopping center landlords, even before the disappointing results of the holiday shopping season were reported.
OC’s retail market saw a 35% increase in vacancy rates from the third quarter to the fourth, to 6.2%, CB Richard Ellis reported.
That’s the highest rate of vacancy here since late 2003 and is up nearly 60% from a year ago.
The coastal regions with the county’s most expensive retail centers,Costa Mesa, Irvine, Newport Beach and Corona del Mar,also are seeing the highest rates of vacancy, with a 7.2% rate at the end of 2008. That’s up more than 70% from a year earlier.
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1325 N. Anaheim: Karchers trying to sell administrative office, plans to keep lease |
Rents haven’t fallen accordingly at shopping centers in those four central coast cities,which count a total of about 14.8 million square feet of space in shopping centers that have at least 50,000 square feet.
The central coast saw an average monthly asking lease rate of $3.74 per square foot at the end of the year. That’s up 5 cents from the third quarter and a nearly 50% increase in rents in just a year.
Countywide, the average asking lease rate in the retail market fell nearly 6% last quarter, to $2.63 per square foot. It’s the first time rates have fallen since the recession began in late 2007, according to CB Richard Ellis figures.
The discrepancy in rate increases for the coastal shopping centers, compared to drops for the county at large, is due in large part to the number of smaller, high-end specialty retail centers near the coast, which can charge monthly rents around $6 per square foot.
OC’s retail market stands to hold up better than other area markets where local economies are more closely tied to the housing market, such as Phoenix, Las Vegas and the Inland Empire, Moore said.
People here “have the money (to spend), but right now they’re just worried. They are waiting to hear good news,” Moore said.
KBS Note
Donald isn’t the only Bren looking to capitalize on the down real estate market.
In late December, an affiliate of Newport Beach-based real estate investor KBS Realty Advisors,whose chairman and president is Peter Bren, the younger brother of OC’s wealthiest resident,bought a $57.4 million promissory note tied to a 10-story La Jolla office acquired by Donald Bren’s Irvine Company in early 2007.
Newport Beach-based Irvine Co. acquired the 189,000-square-foot Northern Trust office tower for a reported $103 million. It was part of a portfolio of buildings formerly owned by Equity Office Properties Trust that the company bought from Blackstone Group LP.
The note was acquired by KBS from Bank of America Corp. at a discounted purchase price and should generate a yield of 13%, KBS reported in a filing this month with the Securities and Exchange Commission.
The building,part of Plaza at La Jolla Village, a six-building campus in University Town Center,is about 90% full. Rents at the building run about $3.70 per square foot, according to Irvine Co.’s Web site.
Burger Office Sale
CKE Restaurants Inc.’s administrative office in Anaheim is up for sale.
The 90,000-square-foot property, built during the past year, is being marketed for sale by the local offices of CB Richard Ellis. The asking price for the property, which sits alongside the Riverside (91) Freeway, isn’t being disclosed.
The building is on land that’s been home to CKE’s Carl’s Jr.’s operations for the past 30 years. It’s owned by the family of the fast food company’s late founder, Carl Karcher.
Carpinteria-based CKE leases the building from the Karcher family, and pays about $1.9 million annually for the office, which puts monthly rents close to $1.78 per square foot. Rents will increase to about $2.25 per square foot by 2020.
CKE’s lease for the Anaheim office is for 15 years and includes options for the fast food company to extend the lease for two additional five-year terms.
