By KEVIN HILL
At the end of 2007, retailers and landlords alike felt the effects of a changing retail market. As seen in the office sector, the housing downturn has had an impact on the Orange County retail market, leading to cautious decisions by retailers and consumers. Still, vacancy rates remain in the low single digits and net absorption for 2007 was 456,506 square feet.
The overall vacancy rate did experience another jump in the fourth quarter, increasing to 4.1% from 3.5% at the end of the third quarter. The average price per square foot in OC is steady at $2.63, which is up from the $2.54 from the third quarter. Neighborhood and strip centers had the largest change in vacancy at 4.5% and 3.9%, respectively.
Vacancy levels for specialty centers remained unchanged at 3.8% from the third quarter, but were one of the only center types to witness a decline in average asking lease rate. At the end of the fourth quarter, nearly 700,000 square feet of specialty space was under construction and is set to be delivered to the market in 2008, making up 50% of all construction in OC.
Discretionary spending is a phrase we now hear on a regular basis, with certain sectors within retail getting hit more than others. Furniture, financial institutions and home improvements all saw a decline in business, which in turn stopped there expansion plans.
On the flip side, discounters and a portion of luxury goods sellers all posted positive sales numbers and are looking for ways to expand.
So what does 2008 have in store?
Retailers are going to be cautious and have to find new ways to compete in this changing market place, while reviewing expansion plans. Best Buy, for one, continues to be strong and is willing change to the market conditions. It continues be the leader in service, selection and price.
As far as the restaurants, we have already seen the affect diners have on the restaurants in OC. The average family in the county that once went to a quick-service restaurant for dinner once a week, is now visiting a sit-down restaurant once or twice a month. The consumer has decided that going to a casual sit-down restaurant once or twice a month is economically more practical than going to a quick service restaurant every week. There has been a flight to quality in this sector of retail.
No doubt OC has taken a hit. But steady retail employment is one of the basic strong holds that it possess. OC retailers and restaurants will continue to be cautious in 2008. But, more important, they are looking for ways to evolve and compete in this new market.
Hill is a senior associate in the Anaheim office of CB Richard Ellis Group Inc.
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