Retail sales started the year strong compared to 2009, providing some much-needed optimism to retailers and consumers alike.
But the second quarter has proven to be less robust, as remaining uncertainty about employment and housing has kept discretionary spending by consumers at bay.
According to the U.S. Commerce Department, total retail sales in the month of May saw a 1.2% decline from April, but was up 6.3% year-over-year. The drop corresponds to a slackening in demand for retail shop space.
Consumer confidence experienced a sharp decline in June, according to the Conference Board Consumer Confidence Index. The index now stands at 52.9, down from 62.7 recorded the month prior.
Wavering consumer confidence is correlated directly to lower demand by retail tenants for shop space.
In the second quarter, the overall vacancy rate for the Orange County retail market ticked up by 2%, bumping the countywide retail va-cancy rate to 8.7%. That represents a 10% in-crease from the 7.9% in 2009’s second quarter.
The Central Coast and South County submarkets experienced the most significant increases in vacancy. The Central Coast now tracks a vacancy rate of 7.9%, while South County has a rate of 9.4%.
Both Central and West County also saw increased vacancy levels of 8.9% and 9.3%. North County, however, experienced a decrease in vacancy from the first quarter to 7.6%—a result of absorption in the majority of its centers.
Of all the retail center types in the county, specialty centers continue to track the highest vacancy level at 14.1%, while power centers have the lowest vacancy rate of 6.1%.
Increased vacancy and lower tenant demand led to 69,145 square feet of negative absorption, bringing the year-to-date total to 128,701 square feet of negative absorption.
The bulk of negative absorption recorded in the second quarter was concentrated in community and power centers, while there was some positive absorption among neighborhood centers.
The majority of the negative absorption was seen in the South County submarket, which recorded 36,578 square feet. Central County followed with 23,185 square feet of negative absorption, while Central Coast and West County accounted for 18,670 and 9,754 square feet of negative absorption. North County was the only submarket to post positive absorption, with 19,042 square feet.
The average asking lease rate for the county remained unchanged at $2.53 per square foot, which is 3 cents below recorded asking rents a year earlier.
In the second quarter, the average asking lease rate remains unchanged at $2.53 per square foot.
This places current asking rents 1% below levels seen at the end of last year. 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 and strip centers.
Specialty centers continue to command the highest average asking lease rate countywide at $3.65 per square foot, which is down 2 cents from the first quarter.
Construction of retail space remains halted. Developers most likely will not begin construction of new centers until a steady trend of positive momentum can be achieved. No centers have been added to OC’s retail inventory since the fourth quarter of 2008 and all formerly active development projects have been frozen indefinitely.
On Hold
In the first quarter, Makar Properties halted construction on Pacific City—a 191,000-square-foot Huntington Beach specialty center.
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 Group Inc.
