"Limited investment activity in Orange County will persist this year, especially for multi-tenant properties," says Joseph V. Cesta, regional manager of Marcus & Millichap's Newport Beach office. "Prospective buyers largely remain on the sidelines, waiting for clear signs of a local economic recovery."
Included in the firm's report is a snapshot analysis that ranks 44 retail markets based on a series of 12-month forward-looking supply and demand indicators. Orange County moves up six places this year to No. 7.
Experts are also optimistic a little further south in San Diego. According to the Marcus & Millichap snapshot analysis, projected job gains boosted San Diego one place to No. 2. At NAIOP San Diego's Market Snapshot program, held recently at the Marriott Del Mar, retail real estate professionals laid out the challenges, opportunities and headlines affecting the retail market in San Diego and beyond. While the prevailing attitude was cautious optimism, several of the panelists don't expect rental rates to rise significantly for retail space for another few years and not reach previous peak rent levels for many more.
"There's a lot of activity at discount low price points," says John Visconsi, president SW region for Kimco Real Estate. Visconsi doesn't expect owners to command market rents for another few years, but added that "since there's no new development, tenants are coming back and taking available spaces," which might send rents creeping up soon.
Panelist Don Moser, founder of Retail Insite, noted that in 2008, 100 local retail spaces above 10,000 square feet became available. Now in San Diego, 70% of the box store spaces are being absorbed. Moser believes both real estate investors and retailers are more fiscally disciplined now and that there's "good energy in the market from the big guys on down."
Rick Kuhle, president of Vestar Development Co., also noted that due to the market conditions new retailers can now "get into San Diego."
Kuhle added that real estate investors may see more properties hit the market toward the middle of this year, as many banks have now paid off the government and will start to dispose of their real estate owned properties after laying low for one or two quarters.
"We've raised capital, so I hope we'll have the right timing," said Kuhle, referring to his company's plans to purchase properties. He pointed out that a lot of investment money that's been waiting on the sidelines will likely flood the market to purchase these properties, thereby possibly driving values down toward the end of the year and into the next.
Colton Sudberry, president and CEO of Sudberry Properties, says that the biggest challenge for real estate investors right now is the length of time it takes to get rental deals done, saying the deal can easily take "twice as long" as it did several years ago.
Sudberry also cautioned that "you can't look at San Diego with a broad brush," pointing out that class A properties have fared well, while some class B and C properties have struggled with higher vacancy rates. Visconsi added that San Diego and Los Angeles have "held their own" in the retail real estate market compared to Orange County, where tenants are still asking for rent reductions.
When asked by moderator Bill Gerrity, chairman and CEO of the Gerrity Group, about specific factors affecting retailers, both Sudberry and Moser noted the tremendous impact that the Internet has had and will continue to have on the market due to new and different ways of selling products. According to Moser "this is the most exciting thing about retail, there is always something new."
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
