Orange County’s Retail Market Remains Scrappy
The Orange County retail real estate market remains resilient despite continued pressure from growing ecommerce sales and a new tranche of retailer bankruptcies. Sears is the latest retailer to file for bankruptcy in the Amazon era. Toys“R”Us, Fallas Paredes and Mattress Firm have all declared bankruptcy, while Lowe’s announced it would close all Orchard Supply Hardware stores. In comparison, ecommerce sales continue to experience double-digit increases year-over-year and analysts are quick to conclude the so-called “retail apocalypse” is imminent. Does this mean it’s time to panic if you are in the retail real estate business? Definitely not, but it does mean the edge belongs to those who are proactive and adaptable in their decision making.
We are also seeing many retailers and developers step up their game in the wake of ecommerce popularity. Retailers like Walmart and Ralph’s/Kroger are offering free same-day delivery and, in the case of groceries, food delivery in as little as one hour. Retailers like Best Buy are not only price matching but offering better product education and experience via what the company calls a “stickier” relationship. Developers are getting better at placemaking, the multi-faceted approach to planning, design and management of space, giving people more reasons to visit a project.
These trends are evident in Orange County. Spend some time in the communal spaces at Pacific City in Huntington Beach with its comfortable seating and ocean views and you’ll see many “Instagrammable” moments. You’ll notice the same at Lido Marina Village in Newport Beach. At unique centers like the Packing District in Anaheim, placemaking is more about people coming together to share a good meal and a communal experience.
Retail remains strong in Orange County. The retail vacancy rate in Orange County is 3.4 percent, according to CoStar, which is down from 4.02 percent a year ago. The 10-year vacancy rate average is 4.85 percent. Average cap rate for retail assets is 5.72 percent, down from 5.76 percent a year ago. The 10-year cap rate average is 6.43 percent. Average market rent is $32.12 per square foot, per year, up from $31.93 per square foot a year ago. These numbers suggest ongoing strong fundamentals for Orange County, which has great infill demographics, despite news of a retail apocalypse.
Retail brands and centers are still performing well in Orange County, and will continue to do so. While pressure remains on retail stemming from the convenience and success of ecommerce, landlords and tenants who are proactive and adaptable will continue to be successful.
—By Terrison Quinn, senior vice president, SRS Real Estate Partners. This article first appeared in the December 2018 issue of Western Real Estate Business magazine.