By Barclay S. Harty
The downturn continued its momentum through the fourth quarter. Many retailers and all landlords were extremely hopeful for an upswing in retail sales that would perhaps spark a ray of hope heading into 2009.
The numbers don’t lie.
Retail sales were weak and there was significant negative absorption in the fourth quarter. The overall vacancy rate increased from 4.6% in the third quarter to 6.2% last quarter. The average asking monthly lease rate in Orange County decreased from $2.79 per square foot in the third quarter to $2.63 in the fourth quarter.
The fourth quarter also saw many established brands file for bankruptcy protection. Who would have guessed that the sheer number of national retailers would be in peril in such a short period of time?
Bankruptcy filers include Mervyns LLC, Linens ‘n Things Inc., Levitz Furniture, Wickes Furniture, Circuit City Stores Inc. and Sharper Image Corp.
Retailers that did not declare bankruptcy in the fourth quarter but are on the “watch list” include Sears, Roebuck and Co., Pier 1 Imports Inc., Borders Group Inc., Eddie Bauer Holdings Inc. and Guitar Center Inc. to name only a few.
Positives
So what are the local positives from the fourth quarter? They include lower gas prices, realistic expectations on prices, repositioning of assets, dense population and a diversified business base.
They also include active retailers that are looking to sign leases. Discount retailers, drug stores, specialty grocers, Hispanic and Asian grocers, discount clothing retailers, cell phone retailers and fast food restaurants,especially burger concepts,still are expanding and will continue to do so.
Other positive comments include:
– Retailers can benefit by looking for strategic, selective expansion and taking advantage of vacancies left by their competitors.
– Retailers that have their financing or cash in place can get the most out of the myriad of opportunities.
– Retailers that are looking to finally penetrate the market could be able to do so with reasonable pricing.
– Cash buyers.
– Landlords can take advantage on a creative approach to repositioning their assets.
– Landlords should be proactive in the current climate and pursue the active retailers and minimize vacancy.
We must keep in mind that retail always is shifting and the resilient OC market has seen this storm before. We will weather it again by identifying the positives and being creative as we move forward.
Harty is vice president in the Anaheim office of CB Richard Ellis.
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