As featured on GlobeSt.com
TUSTIN, CA—Acquiring and building space for specific tenants such as Dunkin’ Donuts, Starbucks and Chipotle will be even more popular next year, predicts Matt Hammond, director of retail brokerage for Coreland Cos. GlobeSt.com spoke with Hammond about some of the trends he’s seeing for Orange County’s retail sector in 2015, including what’s happening with leasing, development and tenant requests.
GlobeSt.com: What retail trends do you see for Orange County in 2015?
Hammond: There has been a lot of discussion from a landlord perspective about what clients prefer or what they want to own, and they’re really back to the neighborhood, grocery-store-anchored shopping centers. They feel most comfortable in those centers, which ideally have a drug store. My clients are focused on those centers because they know customers will go there weekly. When you bring in restaurants and gyms, you can create a pretty cool center, especially with a Crossfit or yoga tenant and a nice salon. This drives traffic and sales, which will ultimately drive rents.
From an investment perspective, though, these are really hard to find. Consolidation between Vons and Albertsons is a concern, but Ralphs/Kroger is really strong, and more of the specialty grocers such as Sprouts, Trader Joe’s and even the discount grocers are all doing well. No one knows what’s going on with Vons and Albertsons, but it’s mainly an opportunity for other grocers to jump on it. Right now, the grocery-store industry is figuring out who their customer is and catering product to that. They’re no longer going to be selling the same product in all areas, but instead are going to be more specialized, and they’re going well because they’re figuring all this out.
GlobeSt.com: What do you see happening with absorption and leasing?
Hammond: In Orange County, for grocery-store anchored centers, there has been positive absorption for the last five years. The economy is stronger, and retailers are figuring out how to be successful. I don’t know if we’ll hit positive absorption, but vacancy is at 5% in Orange County. Most of this space is challenging space within a center, perhaps with limited visibility or poor parking and signage. Retailers want to expand, but there’s not a lot of quality vacant space in Orange County for tenants to go into, so growth may go down a little because they won’t settle for inferior space.
We’re looking at whose leases are expiring in the next 12 to 18 months and considering where we can find a stronger tenant while the space is still occupied. We’re looking at leases that are expiring between June and December 2015 now, and we’re marketing those spaces.
GlobeSt.com: What new types of development will emerge next year?
Hammond: There are two types of development I see: urban-lifestyle, mixed-use, smaller development incorporating some residential and restaurants, and people who want to acquire space to develop or redevelop for a specific tenant that wants to expand into that market. Power centers are not where development is today. Developers prefer mixed-use centers in urban or dense pockets of Orange County or Downtown Santa Ana or Anaheim near the new transit center. We’re also seeing some clients who have relationships with tenants like Dunkin’ Donuts, Starbucks, Chipotle or grocery stores looking to buy the centers where those tenants want to be. They may redevelop that center, but they have tenants in tow. Some of the current owners of these centers may not have the money or aren’t sophisticated enough to deliver space to large grocers.
GlobeSt.com: What are tenants looking for or asking for in 2015?
Hammond: Some of the big-box tenants are still continuing to right-size, and they are getting closer to figuring out their brick-and-mortar vs. Internet ideal sweet spot and size. There will be some relocations and upgrades and some moving around within a specific trade area as we focus on some of the box tenants.
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