Retail Construction, Absorption Remains Strong in OC

Tyler Reeves, KZ Companies LLC

Tyler Reeves, KZ Companies LLC

After disappointing national GDP results early this year, we’ve received great reports on jobs, housing, auto sales, personal income and construction, suggesting the economy is improving. National job growth has seen a 12-month positive, record-breaking streak, while consumer confidence remains strong. Consumer spending is also likely to remain strong in the coming months, supported by high savings, rising house prices and a tightening labor market. This has led the retail market to continue its improvement with demand driven, in part, by high employment rates and consumer spending.

Retailers are continuing to grow and progress with multiple small construction and proposed projects throughout Orange County.

The local market finished last quarter with decreasing vacancy rates that ended at 4.4 percent. The Orange County retail market has seen a vacancy rate decline over the past 12 months that began at 4.9 percent and finished last quarter at 4.4 percent. Average rental rates have performed just the opposite to vacancy declines. We’ve seen a rise in the past four quarters to an average of $23.15, a total increase of more than 3.4 percent. The steady decline in vacancy and increase in average rental rates can be directly credited to the high demand for a limited supply of quality retail space on the market.

Orange County’s retail net absorption has also been strong, ending last quarter with a positive 374,731 square feet. Some notable tenants taking large blocks of space include Nordstrom Rack moving into 29,500 square feet at the Center at Rancho Niguel and La Vida Cantina occupying 63,547 square feet at the Triangle in Costa Mesa.

Construction has continued on numerous projects in the county, with a total of more than 1 million square feet of retail space under construction at the end of the first quarter of 2015. Some notable deliveries to be completed later this year include the 345,000-square-foot first phase of the Outlets at San Clemente and the 33,000-square-foot Marina Park Center in Newport Beach.

Commercial developers are likely to whip up new projects now that the high vacancy rates and unpredictable lease rates of the past five years are reversing. This trend suggests our county market has quite some room to grow. It will likely continue to benefit from strong employment growth, rising wages, and increased upticks in retail and wholesale industries.

By Tyler Reeves, Senior Associate, KZ Companies LLC. This article originally appeared in the July 2015 issue of Western Real Estate Business magazine.

All statistical data sourced from Costar

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