By PETER MOERSCH
The real estate market is showing the first effects of the long anticipated slowdown.
Although the words “bursting bubble” no longer sit front and center in minds of Orange County, the mix of fewer investors and less available space have provided a bit of stability to the market. Third-quarter vacancy rates for all types of space remain below 4%. Only specialty centers were above that at 4.8% vacancy. That still represents a drop from 5.5% vacancy from a year ago for specialty centers.
Of further note is the average vacancy rate for all centers is at 3.5% slightly up from a year ago, the increase coming from community and neighborhood centers. Data aside, the market still is in a positive mode. Many of the investors that still are in the market are bullish on quality opportunities that remain.
Class A space still is in high demand. Investment brokers are reporting that pricing strategies that encourage competitive offers are yielding higher sale prices. This is a marked departure from the buying frenzy where prices were high, capitalization rates low and the property would sell to the fastest qualified buyer. The pricing strategy appears to be effective by encouraging higher interest from lower initial pricing.
Rents similarly are adjusting to a changing market. The leasing market still is robust as retailers chase the growth of the jobs, and residents that continue to flow into the county. The changes have become more about shifts in preferred category type as retailers begin to realize the strengths of the larger power centers, which have encroached on malls and community centers. These single-stop centers for goods and services have proven to drive rents higher. Average rents of $3.17 are up from $2.33 a year ago for power centers. Lack of space in this highest demand segment will continue to drive these rents in the future, which is a good sign for the market on the whole.
A second center type that will continue to grow is the transit oriented property. Centers that focus on the providing goods and services in the path of commute routes, in dense residential developments or in rehabilitated downtown districts, are growing in favor to credit tenants as they realize that travel time becomes a major deterrent to shopping patterns out of the area. Expectations are that this segment will grow and change over time.
The remainder of the market will remain stable, and market stability is a leading indicator of future retail sales. Predictions for the holiday season are for an increase in sales of about 5%. If the holidays are strong, retailers are predicted to increase the number of stores, and retail absorption will increase. Leasing will be the retail driver for the next few quarters as investment stabilizes.
Moersch is a vice president in the Anaheim office of CB Richard Ellis Group Inc.
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