Shop Rents Reported Leveling Off

Construction of new retail space in Orange County will catch up with demand in 1987, causing rental rates to level off for the first time since the 1982 recession, Coldwell Banker’s local retail expert predicted Tuesday.

Rental rates for shops in so-called strip or community retail centers should stop rising in the middle of the year after a 46% increase to $18.98 per square foot at the end of 1986 from $13 per square foot at the end of 1983, according to Robert Peterson, a Coldwell Banker vice president and manager of the company’s Anaheim office.

In response to the rapid increase in rents in the past few years, he said, builders and investors have leaped into retail development.

Shopping center construction in Orange County increased to a record 3.12 million square feet in 1986, up from 1.56 million square feet in 1985. And Peterson forecast that an additional 4.33 million square feet of stores will be added in 1987.

But he said that current estimates are that new shopping center construction will fall to 1.6 million square feet in 1988.

Peterson said that the largest share of retail growth since 1985 has been in community and neighborhood shopping centers rather than in the flashier regional malls.

Last year, he said, the only major regional mall addition was at Costa Mesa’s South Coast Plaza. And for 1987, he said, the only major mall expansion planned is at Main Place, formerly called Fashion Square, in Santa Ana. South Coast Plaza added about 900,000 square feet and the Main Place expansion will increase that center by about 800,000 square feet.

Almost 57% of the new shopping center space being added in the county is in the northern and central sections, where the bulk of the population is concentrated, Peterson said.

Despite the vast amount of new retail shopping space just built or still on the drawing boards, Peterson said, the county’s retail vacancy rates currently are low--ranging from 5% to 8%.

In sharp contrast, the vacancy rate in the high-tech industrial and office building sectors remains high and owners of such buildings continue to offer rent discounts, interior improvements and other perks in an attempt to attract tenants, Coldwell Banker said.

Clark Booth, vice president and manager of Coldwell Banker’s Newport Beach office, said there is a vacancy rate of nearly 25% in the county’s 35 million square feet of high-tech buildings, generally defined as buildings designed for research and development rather than for heavy manufacturing.

The oversupply of high-tech buildings, Booth said, is prompting landlords of those buildings to offer concessions that typically include up to a year’s free rent on a five-year lease.