Glut of Store Space in County Prompts Incentives for Tenants

There is so much empty store space in most parts of Orange County that landlords have begun offering new tenants incentives such as a couple of months free rent, a practice common to the overbuilt office market but extremely unusual in retailing.

That’s the finding of Coldwell Banker Commercial Real Estate Services, the county’s largest commercial real estate brokerage.

Outside the southern half of the county--where a housing boom ensures lots of new customers for retailers--the demand for store space is expected to slack off again this year.

Consequently, construction of new stores and shopping centers--and the sprucing up of old retail space--will level off at about the same rate as last year, said Robert A. Peterson, a Coldwell Banker vice president in Anaheim who spoke at the company’s year-end press briefing Tuesday.

Developers have told the brokerage that they will build or renovate about 3 million square feet of retail space this year. But Peterson says it is more likely to be 2 million, about the same amount that was built in 1987 and 1988.

“That’s not really bad news,” he said. “It’s keeping the market in line.”

Projection Too Large

Coldwell Banker said that last year it had been told 4 million square feet of retail space would be built in 1988, about twice as much as was actually constructed.

But tenants--particularly big anchor stores for shopping centers, such as supermarkets and department stores--didn’t materialize in 1988 and construction of some centers was shelved.

One reason for the scarcity of anchors: The mergers last year of big supermarket chains like Vons with Safeway and Lucky with Alpha Beta means that there are fewer big companies around to supply the anchor tenants.

Another reason: With the rush of retailers to the booming Southern California market in the last few years, there are few big retailers who are not already here. So the prospect of landing a new one to anchor a shopping center is slim.

And among smaller stores, certain types have saturated much of the Orange County market, including frozen yogurt, pizza, video rental, clothing and shoe stores, said the brokerage.

“In some markets there’s one on every corner,” said Peterson.

1988’s Rents Rose 5%

Rents rose a less-than-impressive 5% last year, averaging $19.52 a square foot per year last year for all but anchor tenants in the bigger shopping centers. This year rents will not increase much at all, the brokerage forecasts.

But it is a different story in the south county, where much of Orange County’s growth has moved in recent years because there is still vacant land there.

“The south county still has a lot of demand for retail space and will grow a lot more briskly than central or northern Orange County,” Peterson said.

But even the southern part of the county is not without its problems.

Many new homeowners there have less disposable income than longtime homeowners in the older northern half of the county, who bought their houses at a much lower price, said Scott Perley, a Coldwell Banker vice president in Santa Ana.

RETAIL SPACE IS NOT AT A PREMIUM

Partly because of a glut of empty store space, retail rents in the county rose a less-than-impressive 5% last year, Coldwell Banker said. This year rents will not increase much at all, and new construction will level off, the brokerage forecasts.

AVERAGE RETAILING LEASE RATES FOR SHOPPING CENTERS

Per square foot per year in centers with 60,000 or more square feet. Major tenants excluded.

1975: $5.94

1977: 7.09

1979: 9.92

1981: 12.50

1983: 13.00

1985: 16.80

1986: 18.98

1987: 18.60

1988: 19.52

Source: Coldwell Banker