Q2 2012 Orange County, California Retail Submarket Trends

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Q2 2012 Orange County, California Retail Submarket Trends

Central

  • For its Central submarket, which includes Anaheim, Santa Ana, Tustin, and northern parts of the city of Irvine, Reis reports total existing community-neighborhood shopping center space inventory at 8.7 million square feet.
  • No retail projects of any description delivered in the Central submarket in 2009, 2010, 2011, or 2012 year-to-date.
  • Just 16,000 square feet were under construction per the date of this report in an unnamed neighborhood center at Tustin Village Way and McFadden Avenue, Tustin. Reis expects delivery in September.
  • Tustin Legacy. Redevelopment of the Tustin Marine Corps base in Tustin into the 820-acre Tustin Legacy master-planned development has opened the door to a variety of commercial and residential projects.
  • More. Retail development at Tustin completed to date consists of the 1-million-square-foot District at Tustin Legacy lifestyle center from major developers Vestar Development and Kimco Developers. The project opened in 2007 (the city of Tustin has assumed the role of master developer).
  • Update. Taxable sales at District at Tustin Legacy grew by 4.5% last year to $325.8 million following a 6.0% gain in 2010, The Orange County Register reported in July 2012. Whole Foods and Target are described as “big contributors to the mall’s sales.”
  • Commentary. “This doesn’t look good for the sales performance of the balance of the center,” a local analyst informed the source. “In spite of the high number of restaurants and retailers that have closed, Costco, Whole Foods, and Target have done well.”
  • More. In May, Best Buy shut down its location at The District. It was the only store in Orange County among 50 nationwide that the firm elected to close.
  • More development. Recent news from Tustin Legacy includes infrastructure work for additional development, including residential and office.
  • Macy’s. With two stores—a 334,000-square-foot anchor department store and a 155,000-square-foot men’s/furniture store—Macy’s occupies nearly 500,000 square feet at Westfield MainPlace shopping center in Santa Ana.
  • More. “That will soon change,” the Register reported in June, as the two consolidate by means of an expansion of the main store.
  • Commentary. “The store certainly didn’t appear to be generating sufficient customer traffic to support what was there,” according to the above-cited analyst. “The consolidation will… make for a more profitable store for Macy’s.”
  • Platinum Triangle. About 229,800 square feet have been approved for developer Lennar’s massive, delayed A-Town mixed-use (mainly residential) project in Anaheim’s Platinum Triangle redevelopment area, the city of Anaheim reported in its late June 2012 development update. The development timetable remains uncertain.
  • More. Also in Platinum Triangle, 114,571 square feet of retail space have been approved for the Platinum Gateway mixed-use development. K/L Anaheim Properties I and II LLC is the developer.
  • More. A total of 50,000 square feet of retail have been approved for Platinum Triangle’s Experience at Gene Autry mixed-use development. The city names Prologis as the developer.
  • First half 2012 net absorption of community-neighborhood shopping center space, with no new supply added, was positive 26,000 square feet. The total for second quarter alone was negative 16,000 square feet.
  • At 7.1%, second quarter sector vacancy was up 20 basis points for the period but was down 70 year-over-year.
  • At $26.39 psf and $22.84 psf, second quarter asking and effective average rents were down 0.9% and 0.8% since year-end.
  • Second quarter average anchor and non-anchor space asking rents were $17.88 psf and $26.39 psf, down from $17.97 psf and $26.42 psf a quarter earlier.
  • Respective vacancies closed the quarter at 8.5% and 5.9%, up and down from 7.8% and 6.1%.
  • Outlook. Reis expects 2012’s 41,000 square feet of positive net absorption to mesh comfortably with the smaller volume of new supply. Vacancy is projected to remain flat at 7.1%. Additional small losses are expected for average rents for the remainder of the year.
  • With its massive volume of proposed and approved residential development, the Platinum Triangle area of Anaheim bears watching over the long term.

Coastal

  • Reis counts community-neighborhood shopping center space in the Coastal submarket, which includes Newport Beach, Costa Mesa, and parts of Irvine, at 6.4 million square feet.
  • One project in the community-neighborhood category, the first since 2007, delivered in 2011: Reis cites a May finish for The Landing, a 45,000-square-foot neighborhood center at Balboa Boulevard and 32nd Street, Newport Beach.

Two will deliver all told in 2012, as follows:

  • The 26,000-square-foot Harbor Mesa neighborhood center delivered in June at 3195 Harbor Boulevard, Costa Mesa. Construction began last August.
  • A November finish is anticipated for the 12,400-square-foot Newport Place neighborhood center, which began in May 2012 at MacArthur Boulevard and Newport Place Drive, Newport Beach.
  • Also in Newport Beach, the 20,500-square-foot Mariner’s Point neighborhood center at Coast Highway and Dover Drive is underway for a March 2013 finish.
  • In Newport Beach, Fashion Island mall’s $100 million makeover, which began in 2009, has been completed, the Register reported in July 2012. With the inclusion of new tenants, the shopping center will be more than 90.0% occupied, it was reported in April.
  • More. Taxable sales at the 1.5-million-square-foot mall rose 9.9% to $630.2 million last year following a jump of 13.2% in 2010, the Register reported in July 2012.
  • Commentary. “The repositioning of Fashion Island came at a good time,” the above-cited analyst informed the Register. “The center was completely up and running by the time the economy improved for upscale retailers and restaurants.”
  • Backfilling. In July, upscale specialty retailer Anthropologie opened its third Orange County store at South Coast Plaza in Costa Mesa. The 11,000-square-foot store is located in part of the space evacuated earlier by Borders.
  • (South Coast Plaza is another of the three retail centers that host multiple Macy’s stores—the Register reported in June.)
  • Coastal submarket community-neighborhood shopping center space net absorption for the first half of 2012 was positive 39,000 square feet alongside 26,000 square feet of newly completed construction.
  • At 7.4%, second quarter vacancy was down 30 and 50 basis points for the quarter and year-over-year.
  • At $40.31 psf and $35.66 psf, second quarter asking and effective average rents were down 0.5% and 0.4% since year-end.
  • Reis put second quarter average anchor and non-anchor space asking rents at $28.78 psf and $40.31 psf, up from $28.69 psf and $40.10 psf a quarter earlier.
  • Respective vacancies closed the quarter at 3.1% and 11.1%, up and down from 2.4% and 12.6% the quarter preceding.
  • Outlook. Moderate positive absorption over the remainder of the year will pull the total up to 63,000 square feet by year-end. The vacancy rate should close at 7.2%. Small losses are expected for the mean asking and effective rents for the year. Progress should be more apparent in 2013.

West

  • Existing community-neighborhood shopping center inventory in the West submarket, including the cities Huntington Beach, Buena Park, Garden Grove, Seal Beach, and Westminster, stood at 10.1 million square feet as of mid-year.
  • No community or neighborhood centers have completed construction in this submarket since 80,000 square feet delivered in 2007.
  • A new project. The Source, the largest project underway per the date of this report county-wide with 355,000 square feet of community center space, broke ground in August in Buena Park. Completion is planned for October 2014. M+D Properties is the developer.
  • More. The city of Buena Park describes The Source as “a 500,000- square-foot retail, office, restaurant, hotel, and entertainment complex on the 12.5 acre site at… Beach Boulevard and Orangethorpe Avenue.”
  • More. “As of August 2012, the development team is working with City staff regarding the future retailers, restaurants, and entertainment venues,” as stated by the city.
  • A total of 130,000 square feet of retail are underway at the Garden Grove Galleria mixed-use project at Garden Grove Boulevard and Brookhurst Way, Garden Grove, for completion this August. Construction began in 2007 but was interrupted in 2010 as a result of a loan default by the developer.
  • The 74,000-square-foot Village Circle on Beach neighborhood center was under construction per report date at Beach and La Mirada boulevards, Buena Park, without a specified completion date.
  • Nordstrom Rack will open a new, 34,000-square-foot store this September at Edinger Plaza in Huntington Beach (across from the Bella Terra shopping center), the Register reported in July.
  • More. “The fact that Nordstrom Rack is across the street from Bella Terra is probably a positive for Nordstrom Rack,” stated the above-cited retail analyst. (Nordstrom Rack opened a separate store about seven months earlier at The Outlets at Orange in the Central submarket.)
  • Backfilling. Hobby Lobby will open a 65,000-square-foot store in a former Albertson’s super market space at 7202 Edinger Avenue, in Huntington Beach, the Register reported in July.
  • More. The crafts retailer “is looking at a couple more local locations for potential stores.”
  • More backfilling. In May, Costco opened a 154,000-square-foot store, the county’s tenth, at the Bella Terra mixed-use project in Huntington Beach, the Register reported at the time. The retailer took space previously occupied by Mervyns, which closed its store in 2008.
  • More. Reis reports 150,000 square feet of expansion retail proposed for the Village at Bella Terra mixed-use development.
  • Reis reports 161,000 square feet of retail space planned for the Pacific City mixed-use development in Huntington Beach. The long-delayed project has been taken over by Florida-based developer Crescent Heights, according to recent reporting by Huntington Beach Independent.
  • Community-neighborhood shopping center space net absorption for first half 2012 was 23,000 square feet.
  • At 3.6%, second quarter vacancy was down 10 basis points for the period and was down 70 year-over-year.
  • At $24.31 psf and $21.77 psf, second quarter asking and effective average rents were up 1.3% and 1.5% since year-end.
  • Second quarter average anchor and non-anchor space asking rents were $16.74 psf and $24.31 psf, up and down from $16.66 psf and $24.34 psf a quarter earlier.
  • Respective vacancies closed the period at 0.9% and 6.2%, down from first quarter’s 1.1% and 6.3%.
  • Outlook. Ongoing moderate positive net absorption over the remainder of 2012, alongside no new supply additions, should result in a year-end vacancy rate of 3.3%. Rent growth above 2.0% is expected.
  • Reis currently anticipates a marked increase in construction deliveries for 2013. Absorption may lag somewhat. Rent growth, however, should grow stronger.

South County

  • South County’s favorable demographics and relative abundance of land have made it an appealing choice for residential and retail development. Construction has slowed, but long-term prospects remain favorable; several substantial projects remain in planning stages.
  • Reis reports South County community-neighborhood shopping center existing inventory at 9.3 million square feet.
  • No retail projects have completed construction in South County since 2009. None will deliver this year. None was under construction per the date of this report. One large project, however, is in the pipeline (see below).
  • Backfilling. In May, the Register reported at the time, Hobby Lobby opened an 80,000-square-foot store in the former Mervyns store at 27200 Alicia Parkway in Laguna Niguel.
  • The largest project currently planned for Orange County is the 600,000-square-foot Plaza San Clemente outlet center, the retail portion of Marblehead Coastal’s development site in San Clemente. Reis reports two phases—one planned at 350,000 square feet, one proposed at 250,000. Craig Realty Group is the developer.
  • More. Craig reported site improvements underway at Marblehead as of August, the Register reported at the time.
  • First half 2012 South submarket community-neighborhood shopping center space net absorption was positive 73,000 square feet. The second quarter total alone was 49,000 square feet.
  • At 5.1%, second quarter vacancy was down 50 and 100 basis points for the quarter and year-over-year.
  • At $35.28 psf and $30.97 psf, second quarter asking and effective average rents were down 0.1% each since year-end.
  • Mean second quarter average anchor and non-anchor space asking rents were $21.29 psf and $35.28 psf, down from $21.32 psf and $35.32 psf a quarter earlier.
  • Respective vacancies closed the quarter at 1.9% and 7.3%.
  • Outlook. A total of 137,000 square feet of positive community-neighborhood space net absorption is projected for 2012 all told, accompanied by no new supply deliveries and a decline in the vacancy rate to 4.4%. Small increases in mean rents are expected over the remainder of the year.

North

  • Reis’ North submarket, with 5.7 million square feet of community-neighborhood shopping center space, includes the cities of Brea, Fullerton, and La Habra.
  • One project, a 21,000-square-foot expansion of the Brea Plaza shopping center in Brea, completed construction in 2011.
  • Planned projects include the 113,000-square-foot retail component of the Village at La Floresta mixed-use residential-commercial project at Valencia Avenue and E. Imperial Highway in Brea. Village Partners is the developer.
  • Home Depot. Home Depot evacuated its 27-year-old store at 601 S. Placentia Avenue in Fullerton on August 22 in favor of a new site at 625 S. Placentia nearby, which opened the next day, the Register reported in August.
  • Total North submarket community-neighborhood shopping center space net absorption for the first half of 2012 was positive 7,000 square feet. The total for second quarter alone was negative 4,000 square feet.
  • At 5.9%, second quarter vacancy was up 10 and down 70 basis points for the quarter and year-over-year.
  • At $29.54 psf and $24.94 psf, second quarter asking and effective average rents were up 0.2% each since year-end. Both saw losses of 0.1% during the latest quarter, however.
  • Second quarter average anchor and non-anchor space asking rents were $21.26 psf and $29.54 psf, up and down from $21.20 psf and $29.58 psf a quarter earlier.
  • Respective vacancies closed the quarter at 5.6% and 6.3%.
  • Outlook. A lack of new community-neighborhood shopping sector supply accompanied by 11,000 square feet of positive net absorption over the remainder of 2012 will lower the vacancy rate to 5.7% by year-end. Modest positive rent growth is expected over the second half.