— By Gleb Lvovich, Managing Director, and Daniel Tyner, Senior Director, JLL Capital Markets —
The commercial real estate market across all asset classes has seen a slowdown in transaction activity in 2023 compared to 2022 and 2021 largely due to the rapid increase in borrowing costs for investors. This might have impacted the commercial real estate sector as a whole, but shopping centers in Orange County are still buzzing with consumers as occupancy remains robust.
Orange County has continuously proved to be one of the most sought-after markets to invest in retail due to its strong demographics, population growth and overall fundamentals.
Investor Demand
Shopping center performance in Orange County has been excellent over the past few years, and investors see this trend continuing for the foreseeable future. Low vacancy and strong tenant demand has allowed investors to experience significant rent growth at their properties. Orange County has experienced particularly strong grocer performance and expansion.
Historically, shopping center transactions have been very limited in Orange County. This has further driven investor demand due to the lack of available investment opportunities. The few listings that exist generate significant interest. Recent examples include the sale of Ralph’s- and Rite Aid-anchored Brea Gateway for $85.6 million. The $29.2 million sale of Adams Marketplace, a Smart & Final-anchored center in Huntington Beach, received very strong investor interest and resulted in multiple offers from both private and institutional investors.
Retail Development
Orange County has experienced limited new retail construction over the past 10 years. Outside of smaller new developments consisting of drive-thru restaurants and outparcel shop pad buildings, the county has seen fewer than 10 grocery-anchored shopping center developments over this period. The limited new construction has created an even greater demand for existing shopping centers with strong fundamentals. The recent $36.5 million sale of Bristol Marketplace, a Target-shadow-anchored center in Santa Ana, further proved the investor demand for recently redeveloped infill shopping centers. The center includes mostly food and service tenants that benefit from the infill location and daily traffic generated from Target.
Tenant Performance & Expansion
The main driver of strong fundamentals for Orange County retail comes from tenants continuing to perform at high levels. Not only are tenant sale figures trending upward, but expansion strategies continue to be a focus for many national retailers. With current vacancy just over 4 percent, we’re seeing tenants in the grocery, soft goods and fast-casual restaurant sectors looking to expand throughout the market with limited availability.
Mixed-Use Retail Demand
While retail is performing very well, we are always seeing the sector adapt and improve with changes in the market. Mixed-use projects with retail and multifamily are becoming increasingly common as both components complement each other very well from a consumer demand standpoint. Infill locations in Orange County also have strong housing demand, which has established retail as a necessity in areas surrounded by large housing developments. As Orange County continues to see an influx in population growth, we believe shopping centers with daily needs drivers are well-positioned for the future.