Why Big Box Retail Hasn’t Fallen in South OC

ValueRock Realty Partners is staying active in the Orange County retail market—despite some of the challenges. The firm recently purchased a Best Buy big box retail property for $9 million and signed a 71,000-square-foot lease with a design tenant in another property. The investor says the demand from big-box tenants in South Orange County is healthy, but that every property must have a tailored strategy for success.

“Demand for big box space in South Orange County is relatively strong. Obviously each space has its own unique characteristics; however, most South Orange County communities are master planned and for this reason have resisted previous opportunities to overbuild retail in order to generate greater sales tax revenues,” Dennis Vaccaro, SVP at ValueRock Realty Partners, tells GlobeSt.com. This has created a more stable retail environment overall. The press and media is bombarding us with news of retailers closing stores and/or going bankrupt and that brick and mortar retail is in trouble.  What we do not hear as much about are the retailers who are growing and expanding in this new environment. There is no question that the country as a whole has too much retail square footage.  That is not the case in south Orange County due to the valuable past planning and discipline of these master planned cities—that are also still adding new housing. It’s the familiar supply vs. demand formula.”

While there are opportunities for success in big box retail, Vaccaro says that retail investments come with risk. “Orange County is a stable market, but it certainly has its challenges, especially in the retail sector,” he explains. “We still see strong opportunity for retail in Orange County, but most opportunities that come available often include a serious risk component.”

As a result, ValueRock, a known Orange Count retail investor, has remained flexible. In fact, the firm has broken ground on a Marriott Springhill Suites in Lake Forest. “This was a very interesting situation,” says Vaccaro. “We were literally in the middle of our redevelopment construction for the shopping center when the market starting indicating that less retail square footage was the future. At the same time, the market was evidently extremely underserved in the limited service hospitality sector.  These two uses directly complement each other. We are very excited to see how the hotel and retail center mutually benefit each other in the future.”

While the retail market is definitely changing, ValueRock is confident in the Orange County market. “We don’t know what the future holds,” says Vaccaro. “The reason we continue to heavily invest in this area is because although we cannot see into the future, what we do believe is that this area will continue to be where people with good paying jobs will want to live.  Projects will change over time based on market forces, but so long as the demographics in an area are strong, then commercial real estate investment does well.”