IRVINE, CA—While the bid-ask gap between buyers and sellers remains wide, investors are beginning to get an appetite once more for multi-tenant retail properties in Orange County, Marcus & Millichap reports. Intense interest in single-tenant assets during the last few years has lifted expectations for multi-tenant sellers, according to the firm.

However, different buyers with varying goals are active in the contrasting products. Single-tenant investors are seeking capital preservation plays by focusing on buildings with national-credit tenants secured under long leases, or they will forgo the long lease if the property can be re-tenanted.

These strategies have pushed cap rates for single-tenant assets below 5% in many cases, the report indicates. Multi-tenant buyers, on the other hand, are squarely focused on value creation, and most of these investors are looking for value-add deals that can be repositioned and achieve cap rates that are nearly double the first-year returns offered by single-tenant properties. Listings for these deals are infrequent, and investors need to be proactive when opportunities arise, according to M&M.

On a positive note, while retail recovery in Orange County has been uneven, all submarkets are now on an improving trajectory, the report says. The Airport Area, which includes many of the county's destination retail centers such as South Coast Plaza and Fashion Island, is leading the recovery. Both occupancy and rents in the submarket should top pre-recession highs this year as retailer demand intensifies, M&M says.

Elsewhere, conditions are improving to varying degrees, the report continues. The West submarket, which benefits from barriers to new construction and healthy demand from retailers in coastal communities, could regain previous fundamentals by the end of next year. The other submarkets in the metro remain a handful of strong years away from recouping all of the losses recorded during the downturn.

Builders, meanwhile, are disciplined, according to the report. New construction typically falls into two categories: build-to-suit and destination centers. The Source at the Beach, for instance, is the largest retail development underway in the county and pre-leasing at the property is well ahead of typical benchmarks for this point in the construction cycle.

Stay tuned for an upcoming interview with Robert Osbrink, regional manager of Marcus & Millichap, on more in-depth findings from the report and his predictions for the future of retail in Orange County.