Retail Recovery Strengthens Across Orange County in Q3 2025

Overview of Orange County’s Retail Market

In the third quarter of 2025, Orange County’s retail landscape demonstrated robust signs of recovery, marked by a significant uptick in sales volume and a steady decrease in vacancy rates. The countywide vacancy rate reached a commendable 3.7%, representing a commendable 30-basis-point decline from the previous quarter and a notable 40-basis-point drop year-over-year. This stabilization follows several quarters of volatility, reflecting a gradual absorption of available retail inventory. The total vacant retail space decreased slightly to 5.29 million square feet, with net absorption totaling approximately 389,975 square feet in Q3. This marks a remarkable turnaround from earlier challenges in the year, emphasizing a promising shift towards a more balanced retail environment.

Trends Impacting Leasing Activity

Despite this positive momentum, leasing activity observed a slowdown as tenants became increasingly cautious amid persistent macroeconomic uncertainties. As retailers reassess their expansion plans, particularly in light of higher financing costs, the demand landscape evolved. Smaller-format retailers and service-oriented businesses emerged as key drivers of new leases, while big-box retailers continued to lag behind. Consequently, asking rents remained stable at approximately $2.45 per square foot per month, consistent with the previous quarter and unchanged from a year ago. Additionally, sublease availability saw a slight decline, reflecting improved conditions, although it remains elevated compared to pre-pandemic levels.

Sales Volume Insights

The sales volume in Orange County’s retail sector moderated in Q3 2025, totaling 982,479 square feet across completed transactions. Despite a slowdown from the strong start of the year, the year-to-date sales volume remains more than double that of 2024. Interestingly, the average sale price rose to $557 per square foot—a 33.2% year-over-year increase. Even as cap rates increased by 10 basis points quarter-over-quarter, they are down by 10 basis points year-over-year at 4.7%. This highlights a dynamic interplay between sellers and investors, who are carefully weighing opportunities in light of evolving demand conditions and shifting financing landscapes.

Construction Activity and Development Trends

Construction activity within Orange County’s retail realm remained limited, with developers taking a cautious stance amid elevated interest rates and stricter lending conditions. Only 45,692 square feet of new development was delivered during the quarter, aligning with the broader regional trends that indicate developers remain hesitant to initiate new projects. Furthermore, a striking example of this cautious approach is illustrated by Regency Centers’ acquisition of a five-property shopping center portfolio in South Orange County for $357 million. This transaction notably underscores renewed interest from owner-operators in large-scale retail assets, signaling potential future shifts in market dynamics.

Changing Tenant Landscape

As the retail landscape evolves, bankruptcies and restructuring continue to play a pivotal role. Several national chains, like At Home and Party City, announced closures that altered the regional tenant mix. Nevertheless, optimism remains as the successful leasing of former Rite Aid locations demonstrates the adaptability of the market. The closure of these pharmacy sites has created attractive spaces quickly absorbed by alternative tenants. Noteworthy examples include retail spaces in Tustin and Anaheim, now occupied by medical service organizations—a growing trend referred to as "medtail."

Looking Ahead: Strategic Adaptation and Market Outlook

Despite the ongoing challenges posed by economic headwinds, Orange County’s retail fundamentals remain comparatively strong. With resilient consumer spending and favorable demographics supporting gradual market progress, the outlook appears positive. Success in the coming months will largely depend on strategic repositioning, adaptive reuse, and tenant diversification. The retail landscape in Orange County is evolving, and stakeholders must remain agile to navigate the uncertainties ahead while capitalizing on emerging opportunities.

Overall, the future of Orange County’s retail sector hinges on its ability to adapt to changing dynamics, harness pent-up consumer demand, and embrace innovative strategies that cater to shifting retail trends.