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9/23/24
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This report provided by real estate services firm NAI Capital Commercial
Despite rising vacancies and economic challenges, Ventura County's retail sector sees strong investor demand for prime locations, with sale prices up 21.6% and strategic redevelopments paving the way for future growth.
MARKET OVERVIEW
Ventura County's retail market recovery, four years post-pandemic, continues at a slow pace. In Q2 2024, the retail sector saw another uptick in the vacancy rate, rising 30 basis points quarter-over-quarter and 20 basis points year-over-year at 5.7%. While leasing volume saw a 5.3% quarter-over-quarter decrease, it came in 49.3% below last year's leasing volume for the first half of 2024, totaling a low 211,k sf.
Bankruptcies among popular retail chains, including 99 Cents Only Stores, Rite Aid, and Big Lots recently following suit, are ongoing. Retail bankruptcies have become exceedingly common, compounded by revenue loss and further aggravated by higher supply chain and labor costs. California’s fast-food minimum wage increase to $20 an hour is the latest challenge. Since the wage mandate took effect in April, representing a 25% increase from the statewide $16 an hour minimum, California fast-food franchises have been cutting worker hours. Rubio’s Coastal Grill, citing rising business costs, abruptly shut down 48 restaurants in California. The move came two months after the state’s $20 an hour minimum wage took effect for fast-food employees.
The tough economic climate and cost-of-living crisis have left many retailers struggling, shedding space. Occupied retail space remains more than half-a-million square feet below post-pandemic levels from Q2 2020. The total vacant space on the market, exceeding 5.1 msf in the first half of 2024, represents an all-time high, highlighting the retail market's ongoing struggle to return to 'normal' vacancy levels.
Discount retailer Big Lots said in July it planned to close 35 to 40 stores in a Securities and Exchange Commission filing, then the number rose to 315 in another filing in August. This marks the latest chain with a large footprint in California to file for bankruptcy. June saw the highest level of bankruptcies since the early days of the COVID-19 pandemic, according to S&P Global. In 2024, the U.S. economy continues to face macroeconomic challenges, including elevated inflation, which has adversely impacted consumer buying power.
TRENDS TO WATCH
As the economy evolves, the demand for retail space is shifting. Despite the challenges, investor interest in prime locations remains strong. The average sale price for retail space has increased by 21.6% to $588 per square foot compared to the previous year. While sale volume on a square footage basis decreased by 6.7% compared to the previous midyear’s year-to-date figures, it dropped significantly by 62.8% quarter-over-quarter. This suggests that higher-priced retail properties are trading less frequently, but at increased values. However, the average asking rent for direct space has declined by 4.8%, pointing to a potential gap between asking and bid prices.
The backfilling of retail spaces vacated by bankrupt retailers is expected to support occupancy levels. For instance, in June, Dollar Tree Inc announced the acquisition of leases and assets from 99 Cents Only Stores across the western U.S., which may help stabilize vacancy rates. However, increasing occupancy will likely require organic growth, which could take time.
Ventura County might be particularly affected by these shifts, especially with the recent Big Lots bankruptcy and the Kroger-Albertsons merger. Key locations potentially impacted include stores in Ventura, Port Hueneme, Santa Paula, Camarillo, Agoura Hills, and Newbury Park. Grocery anchor tenants, once considered resilient post-pandemic, now face potential disruption from the Kroger-Albertsons merger.
In Camarillo, Investec Real Estate Companies is redeveloping Central Plaza, a 180.7k sf neighborhood shopping center anchored by Vons and CVS. Interestingly, this Vons is one of the 579 locations slated to be sold as part of the Kroger-Albertsons merger. However, Vons will be relocating to a new, larger, state-of-the-art store in place of the old Kmart, which filed for bankruptcy in 2002.
As the economy presents new challenges, demand for retail space hangs in the balance, with prime real estate finding tenants through strategic redevelopments. Investors are increasingly eyeing opportunities to transform outdated spaces into vibrant community centers that meet the evolving needs of today’s consumers. The backfilling of vacant retail spaces bodes well for maintaining occupancy levels, though organic growth will be needed over time.
This report prepared by J.C. Casillas, Managing Director, Research, NAI Capital Commercial
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