OC’s Retail Market to Remain Stable With Mild Volatility

by Camren Skelton

Expect the Orange County retail landscape to be characterized by continued strong fundamentals and high transaction volumes in 2017. The area remains among the most stable markets nationally—attractive to both high-end and affordable retailers thanks to its high median income and population growth.

Matt Hammond, Coreland Companies

Matt Hammond, Coreland Companies

However, a bit of volatility would be welcomed in the coming year to generate leasing opportunities and enhance rental rate growth.

Significant store closings, including a selection of Walmarts, Macy’s, Staples and Sears, in addition to Sports Authority and Sports Chalet locations, affected many of our regional malls and shopping centers in 2016. As a result, we will continue to see more space absorbed rather than closed or constructed in the coming year.

This type of instability breeds opportunity. From grocers to soft goods to restaurateurs, traditional and non-traditional retailers remain motivated to identify what works best across Southern California.

Retailers who have been working to right-size and reconfigure their traditional formats will catch everyone’s attention in 2017. Target recently announced the opening of a flex-format concept with plans for a 41,000-square-foot store in Orange in the fall. Burlington Coat Factory has been evaluating a smaller footprint, while 365 by Whole Foods will soon enter the Orange County market with its second California location in Los Alamitos.

Restaurants, which now anchor many of our shopping and entertainment destinations, remain one of the most viable retail sectors. In 2016, sit-down, quick-service and café concepts represented 34 percent of Coreland’s total deal volume, a number that has steadily increased over the past five years.

Despite the strength of the food sector, expect to see natural turnover among restaurant concepts. Food trends will shift and poor operators will be replaced with new and better uses. While 2016 was the year for poké, 2017 will likely see the expansion of quick-service Mediterranean concepts like Chicken Maison, fresh juice concepts like Juice Pressery, and bowl concepts such as Bowlology.

Although there remains a finite list of typical soft goods and services to backfill space, such as cell phone stores or salons, medical uses are continually expanding and taking sizable square footage. Examples are prevalent along any retail corridor. A long-vacant 12,000-square-foot building in Santa Fe Springs was recently leased to an East Coast Medical Group. A neighborhood shopping center in Tustin, which had traditionally contained a mix of struggling retail and services, is now 100 percent leased, with more than half of those tenants being in the health and fitness realms.

Grocery remains the best attraction among property types. A well-located center within the Orange County market is hard to beat, as long as ownership groups, managers, brokers and tenants work together to maintain the experience. Whether it’s a high street shopping destination or a community retail center, presenting a compelling customer experience will remain a top priority in 2017.

— By Matt Hammond, Partner and Senior Vice President, Coreland Cos. This article first appeared in the January 2017 issue of Western Real Estate Business magazine.

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