Retail Markets in Focus: Orange County, CA

Like many other Sun Belt retail markets, Orange County, CA has rebounded relatively quickly from the pandemic-induced downturn. CBRE forecasts that Orange County’s average retail asking rent for neighborhood, community and strip centers will increase by 13.6% to $37.69 per sq. ft. over the next two years—the highest growth rate in the nation.

Figure 1: Top 10 U.S. Markets for Two-Year Forecast Asking Rent Growth

Source: CBRE Econometrics Advisors, Q2 2022.

Limited space availability is driving this rent growth. At just 4.5%, Orange County’s availability rate fell by 70 basis points over the past year and has consistently averaged approximately 1.7 percent points below the national average over the past 10 years. Much of the available space is being absorbed by big-box retailers, which have been particularly active in the market. This contributed to 368,000 sq. ft. of absorption in the first half of 2022 despite uncertain economic conditions.

Figure 2: Orange County Retail Availability vs. U.S.

Source: CBRE Econometric Advisors, Q2 2022.

Available retail space in Orange County likely will remain tight for some time. Supply grew by just 0.3% between 2010 and 2020, even though the city of Irvine’s population grew by 45% and made it one of the top 10 fastest-growing cities in the nation, according to the U.S. Census Bureau. The market currently has one 60,000-sq.-ft. unanchored strip center under construction in San Juan Capistrano.

Figure 3: Orange County Retail Completion Rate vs. U.S.

Source: CBRE Econometric Advisors, Q2 2022.

The Census Bureau ranks Orange County as having one of the most educated consumer bases in Southern California, with 41% of its population aged 25 years or older holding a bachelor’s degree. A large and educated consumer base tends to spend more than other consumers because of higher earnings and lower unemployment levels. The market has the highest median income level in Southern California, with an annual average of $95,934.

The unemployment rate is significantly lower for people with a bachelor’s degree than for the general population. The U.S. Bureau of Labor Statistics reports that 60% of total retail spending comes from those who have a bachelor’s degree or higher, which makes Orange County one of the most attractive markets for retailers.

Figure 4: Percent of Population Aged 25+ With at Least a Bachelor’s Degree by County

Source: US Census Bureau, CBRE Research.

Figure 5: Unemployment Rates & Earnings by Educational Attainment, 2021

Note: Data are for persons age 25 and over. Earnings are for full-time wage and salary workers.
Source: Current Population Survey, U.S. Department of Labor, U.S. Bureau of Labor Statistics.

Figure 6: Annual Average Percentage Share of Total U.S. Expenditures by Educational Attainment

Source: Consumer Expenditure Surveys, U.S. Bureau of Labor Statistics, September, 2021.

Looking Ahead

While tourism remains the primary driver of Orange County’s economy, it is the highly educated consumer base that makes its retail market so resilient. With strong real estate fundamentals and limited new development, the local retail market will continue to thrive. Vibrant foot traffic and sizable same-store sales should continue despite potential economic headwinds over the next year.