Orange County Tenants, Landlords Embrace the New Retail Norm

by Taylor Williams

Despite the headwinds facing retail real estate, including the continued rise of ecommerce, the Orange County
retail market remains resilient. Statistics are favorable. Vacancy is low at 3.7 percent and average market rent is $32.29 per square foot, up 1.15 percent from last year. Cap rates remain nearly 200 basis points below the national average, signaling buyer sentiment that OC retail is a relatively safe haven. Ground-up development is slow and selective, shoring up demand and keeping rates up for the foreseeable future.

Terrison Quinn, SRS Real Estate Partners

The interesting thing is that the market trends are pervasive. Let’s identify a few. Drive-thru restaurants are on fire. Tenants like Chick Fil-A, Raising Cane’s, Starbucks, In-N-Out, Panera and others are performing much higher in SoCal as compared to the rest of the country. Good sites are commanding competition, driving ground rents and drive-thru build-to-suit rents higher each of the past three years. Fitness, grocery, discount and entertainment uses are the most active players in the box category. It’s amazing to think the 1.5 million square feet of big boxes that were dumped on the market in 2017 and 2018 are now mostly accounted for thanks to these new users. EOS Fitness, Planet Fitness, ALDI, Burlington, At Home and Ross are some of the more active box players in the market that have been absorbing these spaces.

KidZania will be an interesting story to follow. An interactive role-playing “city” for children, this tenant is taking 90,000 square feet at the soon-to-be redeveloped MainPlace Mall in Santa Ana. Open-air craft food and drink gathering spaces are here to stay. Steelcraft Garden Grove is a new urban eatery made of 22 shipping containers that is bustling with activity and off to a strong start. There is also a lot of anticipation for The Plant in Costa Mesa, a new mixed-use project by the mastermind developer of The Camp and Anaheim Packing District. Large-format retail banks are becoming antiquated. We’ll continue to see more retail banks close as digital banking gains popularity. Restaurants continue to shrink in size in an effort to combat rising labor, COGS and construction costs. We’ll continue to see larger, older format restaurants close to make way for drive- thru restaurants or smaller-format regional and local groups that also provide a stronger sense of community.

Orange County’s future remains bright. This is especially true for landlords and tenants that are adapting to the new normal by providing a better product, service or experience in their battle with Amazon and other ecommerce companies that provide incomparable convenience.

By Terrison Quinn, managing principal, SRS Real Estate Partners. This article first appeared in the November 2019 issue of Western Real Estate Business magazine.

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