As the nation continues to tread through this current recession, there may be a glimmer of light at the end of this lengthy tunnel.
Consumer confidence is on the rise and increased considerably in May, according to the Conference Board Consumer Confidence Index. The index now stands at 54.9, which is up from the gain seen in April to 40.8. Although unemployment continues to increase, consumers seem to be less pessimistic than in prior months and have expectations that economic and labor conditions will begin to improve later this year.
Reflecting the increased confidence is the rise of recent retail sales. Although still 11.1% down from a year earlier, May retail sales released by the Commerce Department reveal total retail sales are up 0.5% from the prior month. Discretionary spending continues to be prevalent as sales at health and personal care stores increased 0.7% from April and represent a 3.3% increase from a year earlier.
The recent increase of consumer spending has yet to dramatically impact the struggling retail property market. Decreased sales for the majority of retail tenants continue to decrease the demand for new retail space. The overall vacancy rate for the Orange County retail market saw an additional gain of 8% this quarter and now stands at 7.7%.
With the exception of South County, vacancy rates increased in all OC submarkets. North County saw the most significant rise in vacancy, going to 7.8% from 6.2% in the previous quarter. The Central Coast submarket climbed to 8.1%, West County rose to 7.5% and Central County to 7.6%. South County stayed at 7.6%.
Of the center types, specialty centers continue to have the highest vacancy level, increasing to 12.8% from the 10.6% recorded in the previous quarter, while strip centers continue to hold the lowest vacancy rate of 5.1%. The vacancy rate for community centers actually declined in the second quarter, going from 8.4% to 7.7%.
Absorption
Increased vacancy levels led to 195,751 square feet of negative absorption in the second quarter. The majority of the negative absorption occurred in neighborhood centers; however, power, specialty and strip centers equally felt the impact of continued vacancy this quarter.
The majority of the negative absorption was recorded in the North County submarket, which posted more than 93,000 square feet of negative absorption.
The average asking lease rates for the county declined an additional 5 cents from the previous quarter to $2.56 per square foot.
Central coast exhibits the widest range of lease rates, from a low of $1.10 per square foot to a high of $6 per square foot for specialty centers, keeping the overall average to $3.70 per square foot. Now more than $3 per square foot, the average rate for specialty centers in OC is the highest average asking price at $3.70 per square foot, which represents a 12 cent decline from the first quarter.
Developers remain reluctant to begin the development phase of retail space, demonstrated by the decline of new construction. Several projects have been halted until market conditions improve or at least reach a stable balance. Mirroring the previous quarter, no new centers were added to OC in the second quarter. Currently 191,000 square feet of new retail space remains in the construction phase, which is in the West County submarket.
Although nearly 1 million square feet of retail space was completed in 2008, no new centers have been delivered to the market this year. Pacific City, a specialty center in Huntington Beach, remains in the construction phase totaling 191,000 square feet and is scheduled to complete by the end of the year. In the second quarter, Westminster Asia Plaza halted construction and returned to the planning phase of its 100,000-square-foot specialty center, also in West County.
Analysis provided by CB Richard Ellis Group Inc.
