Strong recent job growth in Orange County has led to a major pickup in demand for quality retail space. The county’s low development profile has resulted in correspondingly high long-term occupancy levels. Thus, the recent recession with its negative absorption drove the local community neighborhood shopping center rate no higher than the 7 percent peak it reached in the first quarter of 2010. Descent has been the trend ever since.
The rate has dropped to 5.5 percent by the end of the second quarter, down 40 basis points year-over-year amid modest additions to supply. The second quarter National Community neighborhood sector rates, by comparison, were notably higher at 10.5 percent. Orange County power centers’ vacancy rates are also lower than the national rate. There have been no power center projects completed in the county since 2007. The vacancy rate for power centers in Orange County is 3.9 percent, compared to 5.7 percent nationally.
Orange County’s typically strong economy, positive population growth and high levels of affluence bode well for local retailing and the local retail real estate market.
All of Orange County’s cores will see new retail development delivered in 2014 and beyond. Some of the new development will be in existing centers where new buildings can be incorporated. Buena Park has a larger project under construction called The Source that is proposed to include more than 350,000 square feet of retail. It has a planned completion date of November 2014. Huntington Beach has a mixed-use project on Pacific Coast Highway that has been stalled, but is now being built by DJM Capital Partners. The company is also proposing a mixed-use expansion at the Villages of Bella Terra, also in Huntington Beach.
South County’s strong demographics and availability of land have made this area attractive for development. Several projects are either underway or will soon be underway. The Villages at Nellie Gail Ranch will feature more than 110,000 square feet and should be completed by June 2014. One of the largest projects yet to be built is the proposed 600,000-square-foot outlet center at the Marblehead Coastal site in San Clemente that will be developed by Craig Realty Group. The Laguna Hills Mall also has plans for redevelopment, which should result in additional square feet, while Fullerton has plans for a retail component to be incorporated into its transportation center. Brea also has approved a 100,000-square-foot retail project for La Floresta Villages at Imperial Highway and Valencia Avenue.
Other projects taking shape that should create new retail demand include the Irvine Company’s Los Olivos Development in Irvine, the Heritage Fields/Grant Park redevelopment area in Irvine and Tustin Legacy in Tustin.
Upgrades and redevelopments have been significant as well. They have occurred most notably at Fashion Island in Newport Beach, Bella Terra and Edinger Plaza in Huntington Beach.
The outlook for retail in Orange County is very bright. Vacancies are projected to dip below 5 percent by 2015, and rents are anticipated to increase as demand drives them up.
— By Bernie Labowitz, Senior Vice President, Founding Advisor, Sperry Van Ness / Renaissance Commercial. This article first appeared in the January 2014 issue of Western Real Estate Business magazine.