LAGUNA NIGUEL, CA—As growing retail sub-sectors expand, it’s not unusual to see multiple bidders for the same space in South Orange County, Colliers International‘s VP Terrison Quinn tells GlobeSt.com. As we reported last week, Quinn and colleague Casey Mahony represented owner Buie Stoddard Group in lease negotiations for Nordstrom Rack to open a seventh Orange County location this spring after signing a 10-year lease agreement at the Center at Rancho Niguel, a retail center comprising more than four contiguous city blocks here. GlobeSt.com spoke with Quinn about trends he’s seeing in retail leasing.
GlobeSt.com: You say you are seeing spaces that once were vacant for long stretches suddenly filling up with new tenants. What types of new tenants are filling this space?
Quinn: Any time we have a vacant restaurant opportunity, we’re seeing multiple bidders within weeks of initial marketing efforts. Back in the recession, it was rare to see a multiple-bidder situation, and now we’re seeing more of that. Quick-serve restaurants are extremely active right now, and we’re generally continuing to see heavy interest from service uses, such as salons and health-related tenants, which are expanding aggressively. Rents are being driven up significantly, up to if not higher than 2006 levels in some areas. Vacancy levels have decreased in the past 18 months or so, and in South Orange County there was a sub-5% vacancy factor whereas in 2010 it was 7%.
GlobeSt.com: But there is still concern about retail vacancy and that bricks-and-mortars are shrinking their footprint. How is this possible?
Quinn: We’re seeing a lot of retailers adjust such that they’re utilizing the bricks-and-mortar stores in addition to leveraging online sales—a so-called click-and-mortar hybrid. We have seen several national retailers shrink their prototype footprints from where they were in 2006: PetSmart, Staples and Petco are examples of tenants doing this. The size of the store is typically more like 12,000 to 18,000 square feet, whereas pre-recession it was more like 22,000 to 25,000 square feet, but activity has still been strong. We’re representing a former Loehmann’s that has received multiple offers, and in infill locations like the Inland Empire, big boxes that have sat vacant are now seeing deals gaining traction. So, it hasn’t been just specific to coastal Orange County. Generally speaking, Southern California retail is seeing more leasing activity moving forward. And despite the fact that more people are buying online each year, there’s still a need for bricks-and-mortar stores, whether for service or food providers, soft or hard goods. Most of the successful retailers are leveraging both channels for elevated success.
GlobeSt.com: What other trends do you see occurring in the retail leasing sector now that activity levels are close to pre-recession?
Quinn: There’s been an increase in rents as a result of the positive absorption and therefore lessened supply of good locations. We’re also seeing somewhat of an increase in funds being dedicated to redevelopment of or repositioning of existing shopping centers. One example is a center in Mission Viejo called Avery Center at the northwest corner of Avery and Marguerite, and the owner, Pacific Castle Management, is putting substantial capital into the redevelopment of that property. As a result, it has been able to sign leases with high-caliber tenants that can generate substantially more sales and therefore pay substantially more rents for the location than prior to the redevelopment. Rents have essentially doubled from the pre-redevelopment image of the property. This is just one example of more shopping-center owners putting money into redevelopment of existing centers that may be tired-looking and in need of an upgrade in terms of architectural design and the feel of the center.