By PETER MOERSCH
Retail projects finally are finishing in Orange County after a long period of planning and growth. Landmark openings of The Arbor district in Laguna Hills and Woodbury Village center in Irvine are the first of many construction projects to open.
They were considered leading indicators of the market at the time they showed up on the drawing boards. Now that they have opened, they are showing that the strong retail market not only is stable but showing signs of strength and growth. More centers are expected to open fully leased, including projects in Tustin, Irvine and San Clemente.
These developments also defy the notion that there is no opportunity for developments in the county. Further projects stand to add 2.6 million square feet of retail space. Conventional thinking would be that adding more space would create higher vacancy. But the market has been stable, and vacancy remains the same in the past two periods.
For all types of retail space, there is slightly higher vacancy than the same period last year. But average rates below 4% still reflect a strong market. The power and specialty segments, which have been averaging the highest rents, also have seen vacancy continue to drop.
These two categories also are most likely to benefit from the growth and development countywide. Developments such as the District at Tustin Legacy, Anaheim GardenWalk and The Promenade in San Clemente are prime examples that will be finishing in the next year or two.
From a valuation standpoint, statistics show that even though interest rates have remained low and rents have continued to climb,albeit at a slower pace than before,the returns have been decreased. The rabid investors market of the past few years has raised prices to a point that has limited the returns that can be expected now or in the near future.
Investment analysts estimate that prices of many real estate investment trusts now are trading at 13% on average over the market values of the assets they own. The good news of this all is that there appears to be a “soft landing” for real estate. Regardless, retail still is in stride and growth appears to be a safe bet for the future.
Moersch is a vice president in the Anaheim office of CB Richard Ellis.
The Orange County retail market includes retail centers 50,000 square feet or larger, excluding strip centers and free-standing retail buildings. Vacancy and rents exclude regional malls and are shown for shop space only, excluding anchor tenants. Gross available excludes space under construction. Availability does not include sublease space. Absorbed square feet does not include preleased space. Retail rents are triple-net, per square foot per month, excluding rent, tenant improvements and other concessions, if any, and weighted by the amount of vacant square feet. Historical figures may have been adjusted. They may not agree with previously reported figures. Data provided by CB Richard Ellis’ Global Research & Consulting.
