— By John R. Read —
Orange County’s retail market continues to shine, mirroring its famously consistent weather. Despite challenges like persistent interest rate fluctuations, capital markets volatility and signs of a slowing economy, the region remains a beacon for retailers and investors alike. This resilience has cemented Orange County as one of the strongest retail markets in Southern California and the nation.
As 2023 drew to a close, a notable drop in the 10-year U.S. Treasury yield to below 4 percent and signals from the Federal Reserve of potential rate cuts in the upcoming year fueled optimism among real estate investors. However, 2024 has continued to see volatility, with yields reaching mid-4 percent levels and no rate cuts yet implemented. This environment has impacted Orange County’s retail investment sales volume, which saw a 29 percent drop in 2023 from the prior five-year averages and a muted start in 2024. Despite this, investor demand and pricing have remained strong due to Orange County’s high barriers to entry, with average cap rates in the mid-5 percent range and several significant transactions highlighting the market this year.
This includes the April sale of an El Pollo Loco in Orange for $3.8 million at a 4.68 percent cap rate, as well as the June sale of Santa Ana Centre, a grocery- and drug-anchored center in Santa Ana. Both transactions attracted competitive bids from a variety of buyers.
Our team also recently marketed two redevelopment/reposition sites in Orange County. One was a 45,675-square-foot retail box on 4.3 acres in Orange, while the other was a 39,124-square-foot retail center on 3.8 acres in Santa Ana. Both generated significant interest and multiple competitive bids. Other notable transactions in 2024 include Anaheim Hills Shopping Village in Anaheim, Packing House Square in Yorba Linda and Lido Marina Village in Newport Beach.
The driving force behind this robust demand and premium pricing for Orange County retail investments lies in the county’s strong and consistent fundamentals. With more than three million residents, Orange County boasts a nearly perfect climate with world-renowned attractions like Disneyland and Knott’s Berry Farm, 42 miles of Pacific Ocean coastline, and a diverse and thriving business economy. The unemployment rate in May stood at 3.2 percent, compared to California’s 4.5 percent and the national rate of 3.7 percent. Total non-farm employment between April and May rose from 1,696,000 to 1,702,000, with leisure and hospitality adding the most jobs (up 3,800), 58 percent of which were in accommodation and food services.
These economic strengths directly and indirectly support the retail market. Orange County’s retail sector saw positive metrics in first-quarter 2024, with vacancy rates decreasing quarter over quarter to a four-year low of 3.6 percent, and average asking lease rates increasing by $0.03 to $3.00 triple net — a $0.10 rise since the start of 2023. Some submarkets within Orange County experienced even lower vacancy rates and higher lease rates. The county also recorded 148,540 square feet of net absorption, continuing a trend of positive net absorption quarter over quarter. Despite some recent retailer bankruptcies, demand remains strong from a variety of retailers with new leases from Mor Furniture, Jerome’s Furniture, Savers, Ross Dress for Less, World Market, Mitsua Marketplace and others.
With limited large-scale retail development and some retail sites being converted for residential use, including 10 malls across the county, Orange County’s retail fundamentals are expected to remain tight. As we look ahead to the uncertainties of the year, including the potential impact of the forthcoming presidential election in November, one thing remains certain: Orange County’s consistent weather and robust retail market fundamentals will continue to provide a stable foundation for investors and retailers alike.
John R. Read, Senior Vice President, CBRE Retail Investment Properties — West, Newport Beach, California