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Los Angeles County’s retail market improved at the tail end of 2023 on the long and rocky road to recovery from the pandemic shutdowns, a new report found. But the amount of unused property still weighs on the market.
The amount of vacant retail space declined from a record high in the third quarter of 2023 while construction eased to end the year, according to NAI Capital’s fourth-quarter market report. Occupancy increased by 715,371 square feet quarter-over-quarter, but on an annual basis leasing was down almost 9 percent compared to 2022, and the overall amount of leased space remains over 1 million square feet below what it was in 2020.
“Demand for retail space has resulted in a mixed trend, leaning towards the positive side as excess retail space is gradually being worked out of the market,” according to NAI Capital’s report. “Still, the retail market has a way to go to return vacancy to ‘normal’ levels.”
While vacancy declined from its pandemic-induced all-time high, approximately 17.6 million square feet of vacant space remained at the end of 2024. But the improved occupancy has allowed landlords to begin reducing concessions and has solidified asking rents, per NAI.
Quarter-over-quarter asset sales volume increased by 3.6 percent, but total sales in 2023 were 45 percent below 2022, in line with the steep drop in transactions seen throughout the entire U.S. commercial real estate market due to the Federal Reserve’s interest rate hikes. However, retail didn’t experience the same decline in collapsing property values that office space suffered. The average sale price for retail space, $426 per square foot, increased by 6.7 percent from the previous year. Further, average asking rent for direct space in the region rose by 2 percent.
“Investors have resisted ‘fire sale’ lowering prices to close deals,” NAI Capital’s report said.
On the national side, 2023 saw major bankruptcies cause the closure of several popular retail chains with stores in L.A., including Rite Aid, Bed Bath & Beyond and Tuesday Morning. But NAI Capital reported many other companies pivoting back to brick and mortar after vacating space in favor of online sales during the pandemic shutdowns. Santa Monica-based REIT Macerich also reported similarly significant improvements for its national portfolio of shopping centers to end 2023 with strong occupancy numbers.
L.A.’s Westside is the top-performing submarket in the region with the highest rents, but it also has approximately 4.4 million square feet of available retail space, the most in the region, and saw 536,558 square feet of negative absorption in 2023 as vacancy increased by 80 basis points to 7.8 percent. L.A.’s northern submarket saw the average asking rent for direct space drop by 9 cents per square foot, while rent for sublease space climbed by more than 61 percent year-over-year.
“In 2024, the competition for well-located retail space will persist, driving the market,” NAI Capital reported. “Investors are capitalizing on opportunities. … Retailers, sublessors, landlords and investors will continue to aggressively compete as the retail sector recovers.”
Gregory Cornfield can be reached at gcornfield@commercialobserver.com.
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