Changes Coming to OC'S Retail DNA
Southern California has one of today’s strongest retail markets in the nation. Orange County has fared particularly well recently, showing resilience to the tough economic period of the past six to seven years. According to CBRE research, the average per capita income in Orange County is 20 percent above the national average, while its unemployment rate stands at 5.8 percent. This is well below the State of California’s rate at 8 percent, and below the nation’s rate of 6.7 percent. The overall retail vacancy rate of 4.9 percent has reduced 50 basis points since the first quarter of 2013 and has shown three consecutive quarters of positive net absorption.
While the overall retail numbers in Orange County are improving, certain fundamental changes in the personality of the market are evolving after the recession:
Bricks-and-mortar stores in Orange County are responding to unprecedented levels of online sales. According to CBRE research, national online sales are up 185 percent over the past 10 years. They’re projected to grow between 10 percent and 14 percent annually through 2017.
Many of the region’s retailers are actively enhancing their customer’s in-store shopping experience to create an environment that e-commerce is unable to offer. Customer service, landscaping, unique on-site amenities and lifestyle atmospheres are important for sales at bricks-and-mortar storefronts and shopping/entertainment centers. For example, The Union Market in Mission Viejo is becoming the anchor tenant of Kaleidoscope, a 25,000-square-foot marketplace with about 15 unique and hip tenants. The rebranding of the market will hopefully bring young, edgy and urban energy to the lifestyle center.
More retailers are implementing omni-channel strategies as well in order to keep up with online sales increases. These strategies aim to provide consumers with a seamless experience across the internet, mobile devices and physical storefronts.Some retailers have reduced their bricks-and-mortar footprints, moving inventory that was traditionally held at stores farther up the supply chain and into distribution centers.
Perhaps no other sector has been stronger or more active in Orange County retail than the aggressive expansion of restaurants and the food category. Orange County ranks second in restaurant sales per capita among all counties in the United States. The trend of restaurants anchoring Orange County shopping centers has become more and more apparent. This make sense, as the restaurant industry is more resistant to the recent e-commerce influx, and can therefore afford to be riskier in their business decisions.
Nearly all restaurant categories, from fast casual to fine dining, are active in the county. A common denominator for many is the consumer experience. Many companies are actively pursuing premier real estate in high-traffic locations. This includes everything from unique, healthy brands like Lemonade, Urban Plates, LYFE Kitchen, Tender Greens, Fresh Griller and Flower Child to quick-serve pizza concepts like Blaze Pizza, Piology, Mod Pizza and Pizza Studio to gourmet burger concepts like Smashburger, 5 Guys, and other brands like Chipotle, Jersey Mike’s Subs, Corner Bakery, Firehouse Subs, Boudin and Dicky’s BBQ.
Whole Foods, which some consider to be a 30,000-square-foot restaurant, already has a presence or is establishing a presence in Huntington Beach, Newport Beach and Laguna Niguel. Its new 32,000-square-foot Fashion Island location in Newport Beach has two restaurant concepts within the store. Other new additions to Orange County include Red O and Fig & Olive, which have also recently opened at Fashion Island. They are reportedly on pace to achieve annual sales between $10 million and $15 million apiece.
The 1.1-million-square-foot Irvine Spectrum Center includes national retailers like Nordstrom, Macy’s and Target, plus other top retail brands, entertainment users and restaurants. The center attracted more than 17 million visitors in 2013. Food is one of the top categories in the center. It accounts for about 10 percent of the center’s space, but generates about 20 percent of the project’s total sales volume, according to Fred Collings, head of retail leasing for the Irvine Company, which owns the Spectrum and Fashion Island. In Collings’ words, “one of the stellar comebacks from the Great Recession has been the dining category.”
The trends in the e-commerce and food sectors are indicators that Orange County is flexible and able to respond to changing market conditions. The resilience is partially due to Orange County’s unique combination of warm weather, diverse demographics, high population densities, desirable business locations and a highly educated workforce. Retail trends, especially in the e-commerce and food sector, will continually evolve and smart retailers will remain. Those who are adapting to the changing DNA of the retail industry are poised to do particularly well.
By Jeff Moore, Senior Managing Director, CBRE in Newport Beach, Calif. This story originally appeared in the July 2014 edition of Western Real Estate Business magazine.