The Orange County retail market was one of the nation’s healthiest in the fourth quarter, spurred by solid holiday consumer spending and employment gains.
A decline in fuel costs and tempered inflation concerns drove retail spending up about 4% during the holidays.
With fewer shopping centers and retail buildings up for sale, investors continue to pay more than $215 per square foot and 6% cap rates. Some 312,460 square feet of new retail construction broke ground in the quarter.
Absorption was up 1.5 million square feet for the year with vacancy rates plummeting more than 10% to 4.4% from last year. Average asking lease rates climbed to $2.29 per square foot.
Vacancy Rates
The Orange County retail vacancy rate fell more than 8% in the fourth quarter to 4.4%. Each submarket posted a drop in vacant space with the exception of the West County, where it rose to 3.3%.
With fewer centers completing construction this quarter and demand remaining firm, the decline in vacancy rates seen since 2001 continued in the quarter.
Net Absorption
Orange County net absorption rebounded from a weaker third quarter. Absorption jumped to 136,535 square feet,slightly less than levels seen a year earlier.
Retail deals continue to outpace vacant space coming onto the market. Absorption for the year doubled to more than 1.5 million square feet versus 2003.
Lease Rates
Higher retail rental rates reflect an extremely tight market. Rates spiked an average of 10% in the fourth quarter to $2.29 per square foot.
Prices rose in all county submarkets, most notably in North County where they are up more than 35%.
Specialty and power centers, while fewest in number in Orange County, still command the highest asking lease rates at close to $3 per square foot.
Construction
Developers moved ahead in Huntington Beach with 312,000 square feet breaking ground in the quarter. The 152,000-square-foot Strand development along Pacific Coast Highway at 6th Street is expected to be completed in the fourth quarter this year.
Lowe’s started construction on a home improvement store at Beach and Warner. It will be the anchor for a 160,000-square-foot community center.
