Real Estate Watch: The Retail Market
Absorption Positive, Lease and Vacancy Rates Steady
By JEFF MOORE
Last year was difficult and challenging for retailers. Although California, and Orange County in particular, seemed to fare better than most of the rest of the country, one cannot help but see that major changes are occurring that will affect retailers, property owners, and consumers in 2002 and beyond.
Orange County has seen the demise of Montgomery Wards, HomeBase (and its offspring House-2-Home), Crown Books, Mars Music, Service Merchandise, Krause’s Furniture and Home Life Furniture. K-mart has filed Chapter 11 and has announced it will terminate approximately 350 leaseholds nationally, including sites in Anaheim and Mission Viejo, with potentially others to be announced. Toys-R-Us is surplusing approximately 70 locations in the U.S., including Kids-R-Us in Fullerton.
Can the Orange County market absorb these vacancies and can retailers continue to grow and prosper? For the most part, the answer is yes. Stronger, healthier, retailers like Target, The Great Indoors and others have acquired many Wards locations, while Superior Markets, Home Depot and others have acquired many of the former HomeBase properties. Certainly Home Depot, Kohl’s, Lowe’s and other leading retailers will absorb available locations that fill their market voids. In addition, locations not absorbed by other retailers may create opportunities for other uses like multi-family, medical office, and self-storage.
Orange County retail statistics remain positive: more than 3.7 million square feet of new construction is under way, we are experiencing positive absorption, vacancy rates are slightly below where they were a year ago, and asking lease rates are stable or slightly higher. Furthermore, Bank of America Industry Research reports that retailer same-store sales rose 5.5% in January (versus 4.9% a year earlier). Discount stores (i.e. Wal-Mart, Target, etc.), off-price apparel stores (i.e. Ross, TJ Maxx, Marshall’s, etc.), and other lower priced retailers are showing the most growth. Finally, consumer confidence, although shaken a little, has not been greatly damaged in Orange County. In fact, the Consumer Confidence Indicator rose from 94.6 in December to 97.3 in January.
Jeff Moore is a senior vice president of retail properties in the Anaheim Office of CB Richard Ellis.
