Retail sales have improved here and nationally in the past year but consumers remain cautious about spending.
Steep gasoline prices and a persistently weak labor market have led to recent declines in consumer confidence even as retail sales in some categories—such as health and personal care—rose during the second quarter.
Sales at health and personal care stores remained solid in the second quarter. Clothing and accessory stores also did well, along with building material and garden equipment stores.
Furniture and home furnishing stores, electronics and appliance retailers, as well as sporting goods, hobby, book and music stores saw ups and downs in the second quarter.
Bigger-ticket categories such as electronics and appliances saw sales decline during over the same period.
The fluctuating market has retailers continuing to exercise caution when making real estate decisions.
Vacancy Rate Up
The second quarter saw the overall vacancy rate for retail space in Orange County rise slightly to 4.4%, a result of a slowdown activity among retail tenants.
The slowdown in demand led to 19,847 square feet of negative net absorption, with much of it concentrated in the Central Orange County submarket.
Despite the drop in activity, the average asking lease rate increased by two cents in the second quarter to $2.46 per square foot.
That remains seven cents below the average a year earlier.
Construction of new retail developments is minimal.
While some projects of less than 50,000 square feet are starting, construction of larger centers will most likely not begin until a steady trend of positive momentum can be achieved.
No new centers have been added to Orange County’s retail inventory since the fourth quarter of 2008, and all formerly active development projects have been frozen indefinitely.
The North Orange County submarket finished the second quarter with the lowest vacancy rate at 3.5%.
The vacancy level in the Central Coast also fell below the countywide average at 3.6%.
Central Orange County and South Orange County were about on par, with vacancy rates of 4.8% and 4.7%, respectively.
At 5.2%, West Orange County’s vacancy rate is the highest among the submarkets.
The second quarter saw 19,847 square feet of negative net absorption in the overall market, offsetting positive absorption in the first quarter.
Year-to-date positive net absorption is now 43,157 square feet.
The bulk of the slowdown was seen in the Central Orange County submarket, which recorded 40,587 square feet of negative net absorption.
The Central Coast followed with 26,461 square feet of negative net absorption.
West and North Orange County recorded 35,787 and 10,217 square feet of positive net absorption, respectively.
South OC Flat
South Orange County had a relatively flat quarter, with a total of 1,197 square feet of positive net absorption.
The average asking lease increased by two cents in the second quarter to $2.46 per square foot.
That’s about 1% ahead of the prior quarter but 3% less than the start of last year.
The Central Coast submarket shows the widest range of lease rates, from $1.75 per square foot to $6 per square foot for specialty and strip centers.
No Major Projects
Construction of new retail centers in Orange County remains on hold. Since the fourth quarter of 2008, the market has had no new construction.
Construction halted in the beginning of 2010 on Pacific City, a planned 191,000-square-foot center in Huntington Beach.
Although there is minor work occurring at the center, construction will not likely restart in earnest until the end of the year.
Buena Park is slated to add a 325,000-square-foot retail center, with a ground breaking expected in the first quarter of 2012.
Analysis provided by CBRE Research.
