Los Angeles Retail Evolves as Tenants Reign Supreme

by Jeff Shaw

— By Gabe Kadosh, Vice President at Colliers in Los Angeles —

Retail leasing activity in Los Angeles is robust. Demand is particularly strong in the home/furniture industries. The quick-service restaurant segment is another one that continues to grow, with a large uptick in demand for drive-thru accommodations.

Now, for the good news — or bad news, depending on whether you’re a landlord or tenant. Los Angeles remains a tenant market. There is currently too much available retail space. Oftentimes, retail tenants can simply go across the street if they find a particular landlord’s rent — or lease terms — unfavorable. 

The current vacancy rate for retail in Greater Los Angeles stands at about 6 percent. Significant concessions and incentives are being offered in various regions of Los Angeles. Downtown Los Angeles is seeing the largest number of concessions. That’s because the office market has been shuttered so dramatically, thanks to the pandemic and the work-from-home trend that just won’t go away. This has caused some Downtown mixed-use office and retail landlords to offer base CAM or even no rent just to keep the doors open. In other cases, some retail tenants only pay a percentage of sales with no minimum base rent.

Unsurprisingly, investment sales have slowed as interest rates increased. This has complicated financing options. It’s also caused retail landlords to reposition their spaces for medical groups, including outpatient and concierge medical facilities. 

Retailers are also getting smaller in size. Target continues to open 10,000- to 15,000-square-foot “city” stores. These smaller footprints generally offer flexible layouts, and are not necessarily marketed to retailers exclusively. Since diversification is now the name of the game to stave off risk, almost all new retail development in Los Angeles will include an additional asset class, such as multifamily. In this area, at least, mixed-use multifamily projects continue to dominate new developments.

Developing the Region

Some key developments lead the way for continued growth within Los Angeles and its retail market. This includes Culver Steps at 9300 Culver Blvd. in Culver City, which will be a significant addition to the Ivy Station complex. Culver City is one of the most active submarkets due to its location on the westside and its accessible transit systems. 

Technology and media companies like Apple, Amazon, Warner Brothers and Discovery Channel are all creating flagship offices in Culver City. Momentum is also growing in Inglewood and Woodland Hills, home of the the Rams’ new stadium and practice facility, respectively. These projects have ushered in new office, retail and multifamily to their given areas. 

Looking forward, there are a few intriguing trends to keep on top of your watchlist for Los Angeles’ retail market. High-end luxury goods sales will be a significant retail growth driver. Indoor mall spaces are also predicted to decline even more rapidly. Meanwhile, as electric vehicles further penetrate the automotive market, car showrooms will be a major factor in development. 

When it comes to going electric, buying high-end luxury goods or repurposing old, outdated mall space, you know Los Angeles will be at the forefront of these trends. Just as it tends to be with other retail trends throughout the years. The only question will be which landlords can entice the next up-and-coming tenants by offering them a space — and terms — they just can’t pass up.

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