Commercial Real Estate Market Report: Retail in Los Angeles County, CA

Market Overview

The Los Angeles retail market showed signs of stability in Q1 2024, with asking rents holding steady at $34.21 per square foot and vacancy rates remaining unchanged at 8.1%. The market absorbed -19,000 square feet in Q1, indicating slightly negative demand. Overall inventory stayed flat at 69,464,000 square feet, with no new completions in the quarter.

Asking and Effective Rent

Asking rents in Los Angeles declined marginally by 0.1% quarter-over-quarter to $34.21 per square foot in Q1 2024. Effective rents, which account for landlord concessions, remained flat at $30.03 per square foot. Year-over-year, asking rents have increased by 0.4% from Q1 2023.

The spread between asking and effective rents has narrowed slightly over the past year, suggesting landlords are offering fewer concessions as the market stabilizes. Premium properties in submarkets like Santa Monica/Westside and Culver City continue to command the highest rents, often exceeding $45 per square foot.

Competitive Inventory, Employment, Absorption

Total retail inventory in Los Angeles held steady at 69,464,000 square feet in Q1 2024. No new space was completed during the quarter, compared to 8,000 square feet delivered in Q4 2023.

Net absorption was negative in Q1 at -19,000 square feet, reversing the positive trend seen in previous quarters. This resulted in a slight uptick in vacant stock to 5,626,000 square feet.

Employment growth in Los Angeles was modest at 0.3%, slightly below the national average. This tepid job growth may be contributing to the soft demand for retail space.

Market Outlook

The forecast for the Los Angeles retail market is cautiously optimistic:

? Asking rents are projected to grow by 1.3% in 2024, accelerating to 1.7% in 2025 and 2.0% annually from 2026-2028.

? Vacancy rates are expected to gradually decline, reaching 7.2% by 2028.

? New construction is likely to remain limited, with inventory growth forecast at 0.5% in 2024, declining to 0.2-0.4% annually through 2028.

However, downside risks remain. In a pessimistic scenario, rent growth could slow to 0.0% in 2024 and potentially turn negative in 2025. Vacancy rates may also rise slightly under this scenario.

The retail market's performance will depend heavily on broader economic trends, particularly employment growth and consumer spending patterns. Continued adaptation to e-commerce competition will be crucial for brick-and-mortar retailers. Prime locations and experiential retail concepts are likely to outperform in the coming years.

Full Market Report: https://d2saw6je89goi1.cloudfront.net/uploads/digital_asset/file/1202373/__07282024_LA_Retail.pdf

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