The slightly lackluster changes over the past few quarters were no surprise despite Orange County’s attributes, due in part to the lack of new development. The construction pipeline contains an excess of retail and countless willing tenants, though few have made their way into development, leaving very little new space for tenants to vie for. Limited space for new developments opposite the uncertainty of big-box anchor longevity has given developers pause, creating a focus on smaller, safer projects.
The average asking lease rate is among the highest rates over the past few years. The region has maintained strong effective rents as tenants contend for prime space and multiple bidders push up rents.
Multiple leases were signed in the quarter at above $5 per square foot, and strong effective rates were found in North, West and South Orange County.
Bidding wars for quality space are projected to continue, so lease rates should gradually increase and reach $2.67 per square foot by the same period next year.
The minimal negative change in occupancy led to no change in overall vacancy, marking the third consecutive quarter of unchanged vacancy, the lowest rate since 2007.
Grocers
Grocery tenants have been the most active in the Orange County market, mirroring the trend throughout Southern California. Grocer sales accounted for over $4 billion in Orange County, according to CBRE Location Analytics and Mapping.
Grocer activity also accounted for over 20% of the region’s top 50 leases in the first half of the year.
Ethnic and specialty grocers have established themselves in communities fitting their target demographics as premium grocers leased space throughout the region.
Absorption
Net absorption fell into the red, ending the quarter at negative 6,280 square feet; however, this figure is minor, and year-to-date net absorption remained positive at 331,170 square feet. The bulk of the negative net absorption was in Central Orange County, at negative 34,882 square feet, driven by a series of minor move-outs and 22,015 square feet vacated by Office Depot.
Orange County absorption historically has trended negative in the second quarter. This year was an improvement over last year, when the region reported negative 56,697 square feet. We anticipate leasing to pick up through the summer.
Analysis provided by CBRE Research
