The Orange County retail real estate market enjoyed a very strong 2000: retail sales in the county increased 8.9% in the year. While sales are forecast (by Chapman University) to increase another 5.9% in 2001, overall market indicators in the first quarter began to reflect the uncertainty of the market along with a slowing of the economy. Retailers now are faced with significant increases in energy bills, as well as high labor and housing costs, when considering expansions.
Still, the area has not seen a tremendous slowdown in activity. Tenants and investors alike are taking more time and being a bit more conscious with their dollars, but OC is alive and well. The vacancy rate rose half a percentage point in the first quarter, to 8.4%, but the average lease rate held steady at $1.72 per square foot per month.
The county has experienced aggressive expansions by many retailers, although they have not always led to the anticipated increases in earnings. Sales have fallen off for some retailers, and there will continue to be consolidations and store closings as retailers “right-size” their operations or change their concepts to meet the demands of their customers. Examples include Montgomery Wards decision to call it quits after 128 years in the business, and HomeBase shifting out of the home improvement business. Store closings will always be a part of the retail real estate picture.
On the other hand, the strongest players likely will continue to grow market share. Big-box tenants such as Home Depot, Home Depot Expo, Lowes, Kohl’s Department Store and Target continue their aggressive expansions. The challenge to OC real estate development is that we are running out of land. There was only about 1.3 million square feet under construction at the end of the first quarter, as compared with more than 2.3 million square feet in the first quarter of 2000. Thus, retailers and property owners will have to look more to the recycling of real estate as the county continues to grow and endure the ever present real estate cycles, and turns in the economy.
Schillne is first vice president of retail properties in the Anaheim office of CB Richard Ellis. Supporting material provided by CB Richard Ellis’ Global Research and Consulting.
