— By John Read of CBRE Retail Investment Properties-West —
The expression “in the black” signifies financial health, a positive outlook, investment opportunities and growth. It’s a phrase that’s resonating strongly with investors, as Orange County’s thriving retail fundamentals spur robust demand for investment properties. Despite ongoing capital market volatility and fluctuating interest rates, Orange County remains a prime target for retail property investors.
The county’s strong retail property fundamentals is driven by its diverse, affluent and highly educated population. The average household income in Orange County exceeds $157,000, with more than 46 percent of residents holding a bachelor’s degree or higher. It also boasts a low unemployment rate of 3.8 percent.
Retail property fundamentals concluded the fourth quarter of 2024 with a county-wide availability rate of 3.8 percent, down from the previous quarter. This reduction was fueled by sustained demand, limited inventory, minimal future supply, 547,000 square feet of positive net absorption and an average asking rent of $2.57 per square foot, a $0.13 increase from the prior year. These positive trends, combined with limited new retail property construction (only 190,000 square feet of supply, representing 0.1 percent of existing inventory and the lowest share among the nation’s 40 largest retail markets), make existing retail property purchases even more compelling.
Last year brought persistent higher interest rates and capital market volatility, with the 10-Year Treasury yield fluctuating between sub-4 percent and mid-4 percent despite Federal Reserve rate adjustment. This led to a slower retail property sales volume compared to 2023 and the exceptionally active 2022 and 2021 periods (when the 10-Year Treasury dipped below 3 percent and even 2 percent). Despite this, the market still witnessed noteworthy retail property transactions at strong prices.
This demand and pricing stemmed from diverse capital sources, including both institutional and private investors, with the latter accounting for more than 70 percent of acquisitions in the past year (and historically). Notable institutional transactions include Curbline’s November 2024 purchase of Santa Margarita Marketplace for more than $22 million ($775 per square foot) in the mid-5 percent capitalization rate range, and the CBRE Retail Investment Property-West team’s June 2024 sale of Santa Ana Centre to TA Realty for more than $46 million.
Private capital was the dominant purchaser profile, with strong pricing achieved in November 2024. This included the sale of a McDonald’s in Fullerton for more than $4 million (3.49 percent cap rate), Coast Market in Laguna Beach for $6.1 million (4.50 percent cap rate) and the vacant Shops at Central Park West in Irvine for $4.5 million.
The new year is generating optimism, increased activity, engagement and interest in the market. Based on our current listings and escrow activity, including Foothill Plaza in Foothill Ranch, a Quick Quack Car Wash in Santa Ana, and Westport Plaza and Square in Costa Mesa, market momentum is already stronger than most of last year. There are inherent uncertainties surrounding interest rates and capital markets, but Orange County is expected to continue attracting retail property investors, likely commanding a premium over many statewide and nationwide markets.
— By John Read, Senior Vice President of CBRE Retail Investment Properties-West. This article was originally published in the February 2025 issue of Western Real Estate Business.