Three Things to Know About Red-Hot Retail

Everyone wants a piece of OC retail, especially close to the coast, CBRE SVP Phil Voorhees tells us. (If you have OC retail space you might get featured in a Kardashians episode.) But it’s tough to get in. Here’s why.

1) Demand is up among investors, but supply isn’t. “We haven’t seen this kind of dearth of retail centers for sale in Orange County in years,” Phil says (snapped with son Mercer). That isn’t going to keep investors from trying, however. Phil tells us that the strong interest in the property type ought to last the rest of the year and well into ’15.

2) Why do they want in so badly? Vacancy rates continue to decline, and rents remain strong, particularly in the best coastal markets, Phil explains. From the market bottom in 2010, the economy is give-or-take four years into the recovery cycle that has historically lasted seven or more years, so there’s still a lot of upside value to be captured. Recently, Phil and colleagues Brad Rable, Megan Read, Matt Burson, Jimmy Slusher, and John Read repped the seller of the 35k SF Garden Grove Festival Square in Garden Grove, which traded for nearly $12M, at a 5.59% cap.

3) There are also macroeconomic factors. The spread between cap rates and interest rates—across all retail asset types—is about twice as wide as it was at the peak of the 2006-07 cycle, Phil adds. “As long as Treasuries remain low (about 2.5% now, down from about 3% at the start of the year), we expect the strong run to continue.”