Vacancy Rate Falls, Absorption Improves, Construction Slows
Retail has been the best-performing real estate sector during the recession and recovery, and the economic indicators for Orange County are pointing in a positive direction.
The county’s population is expected to grow to 3.2 million by 2007, up from 2.9 million in 2002.
Personal income is growing while OC retail sales are expected to rise 4.7% this year and 4.5% in 2004, according to Chapman University’s June economic forecast.
Vacancy
The vacancy rate for non-anchor retail space has been steadily declining since first quarter 2001. In the third quarter, the vacancy rate fell again to 5.8%, down from 5.9% the previous quarter.
The vacancy rate has dropped from 6.4% in the past year, led by activity in the community and neighborhood center sectors.
The vacancy rate for community centers has fallen from 7.9% to 6.2% since the third quarter last year, with the neighborhood center vacancy rate dropping from 6.6% to 5.2%.
Net Absorption
Net absorption in OC’s retail market was more than 300,000 square feet in the third quarter thanks to the completion of two new centers, which entered the market with 85% of the shop space preleased.
Year-to-date, community and neighborhood centers, particularly those anchored by a grocer or drugstore, have been the most active in the market with net absorption reaching 385,880 and 106,859 square feet, respectively.
Lease Rates
The third quarter average asking lease rate for retail space is up 4% to $1.88 per square foot, versus a year ago.
Lease rates were flat compared to the second quarter, reflecting slower activity in the quarter.
Central Coast and South County remain the most expensive markets in OC with average asking rents reaching $2.22 and $2.24 per square foot.
Construction
Construction was completed on two community centers during the summer, adding about 920,000 square feet to the OC retail base.
Westridge Plaza in La Habra is a 695,000-square-foot center anchored by Lowe’s, Sam’s Club, Wal-Mart and Kohl’s.
Trabuco Grove, a 225,000-square-foot center in Irvine, has a Kohl’s and an Albertsons.
The two new centers, whose anchors opened during the construction phase, were finished with only 15% of the combined shop space vacant.
With no new construction breaking ground during the third quarter, current retail development in OC has fallen to just 150,000 square feet. Quail Hill Village off of the San Diego (I-405) Freeway at Sand Canyon and Shady Canyon, anchored by Albertsons and Sav-On, is expected to be finished in the spring.
Analysis provided by CB Richard Ellis’ Information Management Department.
