Third Quarter 2024
Ventura County Retail Market Shows Resilience Amid Ongoing Recovery
Despite obstacles, positive leasing and sales activity in key areas signal signs of recovery and investor confidence.
Investors are making strategic acquisitions of prime real estate, prioritizing the transformation of outdated spaces.
MARKET OVERVIEW
The retail market in Ventura County continues its slow recovery, now approaching the tail end of its fourth year post-pandemic. In Q3 2024, the sector saw a slight improvement in vacancy rates, edging down to 5.6%, a 10-basis-point decline quarter-over-quarter but still 40 basis points higher than the same period last year. Leasing volume showed a notable 53.9% quarter-over-quarter increase, though it remained insufficient to offset the broader slowdown, with year-to-date figures down 23.5% compared to 2023, totaling just 503,329 square feet.
A wave of bankruptcies among major retail chains—including 99 Cents Only Stores, Rite Aid, Big Lots, and The Franchise Group Inc. (owners of The Vitamin Shoppe, Pet Supplies Plus, and Buddy’s Home Furnishings)—has further strained the market. These closures, driven by declining revenues and escalating supply chain and labor costs, have become increasingly common.
Adding to these pressures, California’s new $20/hour minimum wage for fast-food workers, implemented on April 1, 2024, has amplified challenges for retailers. The wage hike represents an 18% increase in average hourly pay, with annual increases capped at the lesser of 3.5% or the U.S. CPI for Urban Wage Earners. Members of California’s Fast Food Council had declared its intention to seek a 3.5% increase in the minimum for 2025. The law that created the panel permits the group to adjust the pay level once a year.
Retail space absorption continues to face challenges. Occupied space remains over half a million square feet below pre-pandemic levels from Q2 2020, while total vacant retail space, though still high, fell just below 2.5 million square feet in Q3 2024. This highlights the sector’s ongoing struggle to return to pre-pandemic norms.
Big Lots’ bankruptcy in September 2024 has led to hundreds of store closures nationwide, including its Ventura location. The chain joins others such as Red Lobster, Rite Aid, and Bed Bath & Beyond in a growing list of large retailers declaring bankruptcy. According to CoreSight Research, U.S. retailers have announced more than 7,100 store closures through November 2024—a staggering 69% increase from the same period in 2023.
The challenging economic climate, compounded by rising costs and the ongoing cost-of-living crisis, leaves Ventura County’s retail market navigating uncertain waters.
TRENDS TO WATCH
As the economy evolves, the demand for retail space continues to shift. Despite challenges, investor interest in prime locations remains robust. In Q3 2024, the average sale price for retail space dropped significantly to $71 per square foot, down from $608 per square foot in the prior quarter. This decline was largely influenced by the September 27, 2024, sale of the Simi Valley Town Center by The Festival Companies to Steerpoint Capital. The 788,426-square-foot retail shopping center sold for $38,075,000, equating to approximately $48.29 per square foot.
Sales volume, measured on a square footage basis, rose by 70.1% year-to-date compared to the prior year, indicating heightened activity in retail property transactions as investors seize opportunities. However, the average asking rent for direct space declined by 2.3% quarter-over-quarter, reflecting a potential disconnect between asking and bid prices, which is driving lower-priced transactions.
Retail building sales, buoyed by the ongoing recovery of brick-and-mortar leasing, recorded nearly $266 million in year-to-date sales volume—up 184.2% from the 2020 pandemic low but 7.2% below the same period last year. The retail sector continues to face hurdles in returning to ‘normal’ levels, with divergent trends between sales and leasing. The median sale price per square foot dropped sharply, falling 83.3% quarter-over-quarter and 50.4% year-over-year to $153 per square foot in Q3, reflecting a low-price, high-volume sales environment.
Rising borrowing costs and price adjustments contributed to a 30.3% quarter-over-quarter decline in the average deal size, which stood at $3,311,240 in Q3 2024. In comparison, the average deal size in Q3 2020 was 23.1% lower at $2,546,095, with a median sale price per square foot of $323. These figures suggest that the retail sales market continues to adapt to shifting economic conditions.
The collapse of the Kroger-Albertsons merger, which would have been the largest U.S. supermarket merger in history, has eliminated a significant potential market disruption. As new economic challenges emerge, demand for retail space hangs in the balance. Investors are making strategic acquisitions of prime real estate, prioritizing the transformation of outdated spaces into dynamic community hubs that align with the evolving needs of today’s consumers. This focus will drive organic growth over time, while the backfilling of vacant retail spaces helps sustain stable occupancy levels.
