The Orange County retail market had a strong start to the year with improvements recorded in nearly every sector.
The region continued to exhibit promising quarter-over-quarter changes in retail fundamentals as shown through positive absorption, growing asking lease rates, and steadily shrinking vacancy.
Orange County is the 17th largest retail market tracked by CBRE Econometric Advisors and is a prime example of industry trends, accounting for 2.1% of overall national retail sales. Population, household income, and total employment are the primary economic drivers of retail demand, all of which have remained strong.
Retail investment and tenant movement have stayed active as part of one of the most diverse and attractive markets in Southern California. Grocer tenants are still one of the most active segment types regionally and nationally. Multiple grocer tenants exited the market, leaving behind empty boxes that remained into the first quarter, though that isn’t a reflection of a weakening industry, as multiple competitors are actively bidding over the desired spaces.
Overall retail recorded no change in vacancy during the quarter, ending at 3.8%. That’s a low last seen in the market in 2007 and displays the regional stability for retail real estate. It compares to a year-over-year decrease from 4.1%, and is projected to shrink further as the year continues.
Vacancy in three of the county’s five major submarkets decreased, South Orange County by the most, dropping from 3.4% to 2.8%. The Central Coast submarket’s vacancy shrank from 3% to 2.6%, followed by Central Orange County, which dropped from 5% to 4.9%.
West Orange County jumped from 3.1% to 3.9%, largely due to the addition of Pacific City, the majority of which is finished and now being actively leased. North Orange County increased from 3.4% to 3.7%.
The retail market’s 337,188 square feet of positive net absorption during the quarter marked the third consecutive quarter of occupancy gains. Central Coast accounted for 147,641 square feet, followed by West Orange County with 117,587 square feet of gains. South Orange County reported an additional 98,234 square feet, along with Central Orange County with 11,195 square feet. The only submarket with occupancy losses was North Orange County, with negative 37,469 square feet.
Much of the increase in vacancy can be attributed to construction on the second phase of Los Olivos in Irvine wrapping up, along with preleased space at Pacific City in Huntington Beach.
The Orange County market’s sole major project under construction is the long-standing 400,000-square-foot The Source at Beach in Buena Park, which is being preleased and should be delivered this year. An additional eight minor projects are in active development, including the Water Grill restaurant in Costa Mesa and additional restaurant space scattered throughout the county.
Multiple large-scale projects fill the development pipeline, including a 300,000-square-foot center in Anaheim, the second phase of the San Clemente outlets, and the highly anticipated Yorba Linda Town Center.
Hill is a senior analyst at CBRE.
