The recession is technically over, but there is a long road ahead for a full economic recovery. A soft labor market and tight credit conditions putting limitations on consumer spending remain stresses on the economy.
But the expectations that go along with the official end of the recession seem to have impacted consumer confidence. After declining in the month of July, the month of August saw a rebound, according to the Conference Board Consumer Confidence Index. The index now stands at 54.1, up from 47.4 recorded the month prior.
In line with recent improved consumer confidence is increased retail sales. Although down 5.9% from last year, August retail sales are up 2.7% from the prior month according to data released by the U.S. Commerce Department. The “cash for clunkers” program most likely boosted sales as well as back-to-school shopping.
Clothing and clothing accessory stores sales increased 2.4% from July to August, while sporting goods and bookstores rose 2.3%, and electronic retailers recorded a 1.1% rise in sales.
Because retail sales have yet to prove steady, the retail property market continues to see a decline in overall demand. In the third quarter, vacancy rose 5% to 8.3%. Increased vacancy levels led to 126,206 square feet of negative absorption, bringing the year-to-date total to 617,400 square feet of negativeabsorption.
The majority of the third quarter’s negative absorption was in neighborhood and power centers, but that was offset by some momentum in community and specialty centers.
By County
The Central Coast submarket saw the most significant rise in vacancy, increasing to 10.8% from the 8.8% posted in the second quarter. Not surprisingly, it had the most negative absorption at more than 86,000 square feet.
South County and West County also saw increased vacancy levels—South County to 8% and West County 8.6%.
Central County remained unchanged from the second quarter at 7.3%.
North County, which recorded positive absorption, recorded a lower vacancy rate in the third quarter to stand at 8.1%.
Despite a decline this quarter, specialty centers continue to have the highest vacancy level at 13%, while strip centers hold the lowest vacancy rate of 5.3%.
The average asking lease rate for the county actually gained 1 cent last quarter to $2.57 per square foot, but it remains 22 cents below recorded asking rents a year earlier.
Reluctance by developers to begin construction of retail space remains prevalent. Several projects have been halted altogether until market conditions improve or at least reach a stable balance. Since the fourth quarter of last year, no new centers were added in OC.
That’s a departure from the construction boom of recent years. Nearly 1 million square feet of retail space was completed last 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.
Several projects totaling 1.8 million square feet remain in the planning phase, some of which have been put on hold indefinitely.
Data and analysis by CB Richard Ellis.
