Expect fewer costume stores this Halloween.
Orange County’s retail market is slowly working through a glut of empty space that hit the market as the recent recession bottomed out and Mervyns, Linens & Things, Circuit City and other big-box retailers went bankrupt or cut stores.
Those moves added nearly 4 million square feet of empty space to the local retail market, which totals about 95 million square feet, much of it anchored by big-box stores.
The wave of vacancies was good news for temporary costume stores and other “pop-up” retailers looking to set up shop for Halloween and other holiday seasons.
It was tough on retail property owners looking for full-time tenants.
A good chunk of the empty big-box space in OC — especially better locations—has since been leased up to a variety of businesses, according to a report issued last week by the Newport Beach office of CB Richard Ellis Group Inc.
The report defines big-box as retail buildings totaling 20,000 square feet or more of contiguous space in shopping centers or freestanding buildings.
The upward trend on big-box goes well beyond the fitness clubs that have accounted for several high-profile leases in the past year. Major retailers—including Wal-Mart Stores Inc., Whole Foods, Fresh & Easy and Best Buy—have accounted for big chunks of space.
CB Richard Ellis estimates that 1.6 million square feet of anchor-store space has been absorbed since 2009, taking 33 empty big-box locations off the market.
Notable leases of late include a 32,000-square-foot Whole Foods Market in a Fashion Island space originally slated for Dean & Deluca, and a 47,000-square-foot lease for LA Fitness at Mission Viejo’s Kaleidoscope mall.
Wal-Mart
Wal-Mart absorbed the most big-box space in OC during the last two years, with five locations, according to CB Richard Ellis’ data. The company also is said to be looking for two or more new locations for its grocery-only concept stores called Neighborhood Markets, which run about 35,000 square feet. That’s well under the size of Wal-Mart’s typical store size.
The recent activity has cut the vacancy rate in the big-box category to less than 3%, compared with 5.5% for the retail market at large, according to brokerage data.
Vacancy figures for the area’s big-box market should continue to drop over the next year, particularly among higher-end properties, according to CB Richard Ellis Senior Vice President Scott Riddles.
“The big story is that ‘A’ locations are getting absorbed, and on top of that there’s no new construction,” Riddles said.
There are only three new centers larger than 20,000 square feet under construction in the county, according to the CB Richard Ellis report.
Larger tenants still have a fair share of locations to choose from, although pickings are slim among higher-end properties.
The recent shuttering of Borders Group Inc. has added to the selection. The bookseller recently closed five stores here, putting the number of big-box locations available in OC at 59, totaling about 2.3 million square feet, according to CB Richard Ellis.
But only about 420,000 square feet, spread over 11 locations, is considered class A, according to the brokerage’s data.
About half of the empty class A buildings now on the market were previously occupied by Borders or Mervyns.
Empty anchor space can be found at high-profile shopping centers such as Costa Mesa’s Triangle Square and South Coast Plaza, The Shops at Mission Viejo, and the Outlets at Orange, previously known as the Block at Orange, according to the CB Richard Ellis report.
A variety of tenants are said to be eyeing the remaining empty space on the market, according to Mark Baziak, director of retail leasing for the Los Angeles division of Colliers International (see real estate column, page 58).
New Names
In addition to grocery chains and general merchandisers, retailers “that are dominant in other states, and Mexico,” have been eyeing local sites, according to Baziak, who works out of the brokerage’s Irvine office.
Oklahoma City-based arts-and-crafts chain Hobby Lobby, and Indianapolis-based appliance chain HHGregg are both said to be looking to enter Orange County for the first time.
Others are seeking bargains on slightly older properties. Ross Dress for Less, Marshall’s, and 99 Cent Only Stores are all on the lookout for space, especially with big-box rents off nearly one-third from peak levels, Baziak said.
The monthly asking rate for big-box retail in OC is $1.24 per square foot, according CB Richard Ellis data.
Class C
Rents could start to creep up again for better properties as the supply of empty buildings diminishes. Owners of some of the area’s older and less-desirable big-box locations might not see much of an improvement, according to Riddles.
There is about 570,000 square feet of empty big-box space considered class C, which in general is retail space built before 1990 in secondary or neighborhood locations.
Some of that space is likely to be put to non-retail uses, including schools, churches and medical offices. Other buildings could be demolished for redevelopment.
Among recent deals at the lower end, Goodwill Industries took over the former Big Lots location in Anaheim, at Lincoln Avenue and State College Boulevard. The 21,000-square-foot space had been vacant for six months, according to brokers.
Class C owners “need to be proactive in leasing space and consider alternative uses,” Riddles said.
