(Mark Your Calendars: RealShare REAL ESTATE 2012, March 22nd in Los Angeles).
ORANGE COUNTY, CA-“We are encouraged by trends in the last part of the year for Orange County retail. Net absorption is still negative overall, but it is moving in the right direction, growing less and less negative every quarter.” So says Jeff Moore, senior managing director of retail for the Southern California office of CBRE. GlobeSt.com recently caught up with Moore and other retail experts in the area to talk about where the sector is headed for the region in 2012.
According to Moore, “With no new shopping center development to speak of, this [net absorption] should continue to improve. In addition, rents are increasing for well-positioned centers, which is another positive sign for 2012.”
Joseph Cesta, regional manager of the Newport Beach, CA-office of Marcus & Millichap is also bullish on retails future. “The job recovery is reinstating demand among hospitality-oriented retailers, particularly restaurants, a category that logged positive absorption in 2011 for the first time in four years,” he says. “As visitor volume and office-using job gains bolster customer traffic, store closures at destination centers and in office hubs will ease, enabling landlords to negotiate rent renewal hikes.”
Although Cesta says that rent gains will remain isolated to core, stabilized centers, he says that trading will intensify in 2012 “as greater access to financing and low interest rates enable private buyers to leverage into assets with magnified returns.”
As for transaction volume, Phil Voorhees, senior vice president of CBRE, tells GlobeSt.com that 2012 will look a lot like 2011. “We saw a lot of product come to market in the third and fourth quarters of the year,” he says. “The consensus is that there is 25% to 30% less product on the market right now, but still the same amount of capital looking to find opportunities.”
Voorhees continues that after the treasury was downgraded last summer, lenders pulled back a bit, particularly the conduits, but they are coming back now. “We should have a strong transaction volume year, on par with last year, and maybe a little bit better. Interestingly, national transaction volume in 2011 was very similar to the average volume for 2003 and 2004.”
According to Cesta, in 2012, the number of listings might not satisfy buyers’ appetites, though, and eager investors may target franchisees or assets with shorter lease terms, he says. “These properties will sell with cap rates 50 basis points to 100 basis points above deals with credit tenants.” On the multi-tenant front, he says, REITs and institutions will pursue grocery-anchored centers, which, depending on location and tenant mix, can sell with cap rates as low as 6.25%. Meanwhile, he adds, strip centers will require cap rates starting in the mid-7% range to capture offers.
The demand, according to Keith Kropfl, senior vice president in Voit Real Estate Services’ Irvine office, will be driven by investors who are competing for Orange County space, as well as retailers looking to take advantage of current lease rates. In addition, he says, there is a new shopping paradigm that is emerging “as retailers move away from more traditional big-box, brick-and-mortar spaces.” As a result, he says, “many retailers are looking to reduce space and relocate to smaller stores.”
According to Kropfl, it is very difficult to find the opportunities, mainly due to the intense competition for retail space in Orange County. “Investing all cash in properties is the key to taking advantage of the better properties,” he says. “While financing is available, its availability is selective, and cash buyers are getting the most attention in today’s market.”
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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.
