By PETER MOERSCH
Orange County’s retail market recorded falling vacancy and rising lease rates in the first quarter, while interest in acquisitions showed some decline.
Retail leasing continues to be strong as absorption of existing inventory has dropped vacancy rates to record lows across the board.
Overall vacancy fell to 2.9% in the first quarter, versus 4.4% a year ago. First-quarter retail vacancy was as low as 1.9% for strip center malls.
Average asking lease rates for all retail centers rose 4 cents to $2.32 per square foot, versus a year earlier.
So there’s plenty of optimism, even as a whopping 8.1 million square feet of retail space is under construction in OC. That’s because most of the space under construction is pre-committed, with many national retailers look for newer format centers to feed expansion requirements.
The other half of the equation for OC’s market involves retail center investing.
Properties still are selling at low cap rates (essentially the expected rate of return of an investment), especially if they have attractive locations and tenant mixes.
The concern is that in spite of the low vacancy rates, investment brokers are finding fewer buyers willing to move on each offering.
One broker said there’s been as much as a 70% drop-off in the number of buyers for each property up for sale.
Some have attributed this decline to the rise in interest rates. Others say it’s market uncertainty from issues such as the cost of fuel.
The concern now is whether the tenant market will follow investors or whether this merely is a pause in the market.
If the economy holds up, investors are hoping for a slowed pace rather than a bursting of the “bubble.”
If that’s the foundation for many OC property owners, then developers are discussing the evolution of mixed-use properties. While countless developers have been pioneering “downtown”-style environments, there are many that haphazardly have designed the base of their projects to accommodate minor restaurant and service uses to cater to the needs of residents and business workers.
True foresight will call for developers to work together to fit the mixed components necessary to create the urban development that adding residents alone can’t accomplish.
The strong economy currently supports OC’s mix of property types. Even if the market softens, there’s plenty of life left. After all, vacancy is less than 3%.
Moersch is a vice president in the Anaheim office of CB Richard Ellis Group Inc.
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