RETAIL MARKET
Historically high occupancy and rental rates combined with fewer construction completions underscore Orange County’s healthy retail market.
With vacancy rates at 4.5% and shop space at a premium, average asking rates have climbed to $2.07 per square foot, making the wealthy county one of the most desired and expensive in the state.
As payroll growth continues on a steady track, retail sales are projected to accelerate past 4% by the end of the year.
While only the 150,000-square-foot Quail Hill Village project came onto the market during the quarter, four new construction projects broke ground totaling close to 700,000 square feet. The data signals a renewed confidence from developers for leasing and investment potential.
With fewer large land lots available for shopping center development, mixed-use implementation with existing homebuilding continues. Cities designing innovative rezoning and tax revenue sources are spurring some development.
Net Absorption
Though it was down slightly, net absorption of 162,000 square feet signaled a healthy market as tenants continue signing deals to snap up limited vacant space.
The 1.3 million square feet absorbed this year is on track to break records in the retail market. While West County and Central County endured negative absorption for the quarter, the Central Coast market rocketed skyward accounting for most of the total absorption as retailers swarm for prime real estate.
Financial institutions, and drug and grocery stores showed strong gains across all areas and have pushed forward aggressively on deals in the county.
Vacancy Rates
OC vacancy rates continued a two-year trend in the second quarter, declining slightly to 4.5%.
North County and West County centers saw an increase in vacancy, while the Central Coast region experienced the most significant tightening of space. Lack of new centers coming onto the market, combined with strong national retailers’ expansion activity, contributed to this overall drop in commercial space.
Tenants’ demand for wealthy destinations continued in the second quarter as vacancy rates at specialty centers dropped more than 40%.
Lease Rates
Limited supply of commercial space and new centers, coupled with soaring demand from expanding national retailers, led to a 0.2% increase in the average asking lease rate to $2.07 per square foot.
Most center types saw rate increases in the past year except for community centers, which dropped to $1.98. Strip centers saw a dramatic 33% in rates, versus a year earlier as shop space for small businesses remains in very tight supply.
South County reported the biggest upward price pressure as more expensive housing units drive overall asking rates higher.
Construction
As the OC economy has picked up steam in recent quarters, new construction is finally kicking into gear with groundbreaking on four new major centers.
The 270,000-square-foot Anaheim Gardenwalk will be the centerpiece of the Katella Corridor entertainment, retail and restaurant redevelopment near Disneyland.
As part of a new mixed-use, residential-retail design, the 55,000-square-foot Center Street Promenade in Anaheim is targeted to be finished in 2006.
A 74,000-square-foot strip center in Cypress will add much-needed shop space to the Central County market.
Building out phase four, the Irvine Spectrum broke ground on the 300,000-square-foot expansion anchored by Nordstrom and Target stores.
