Greater Los Angeles Retail Starts 2018 With Positive Activity

The Los Angeles Basin retail market closed the first quarter on a positive note as net absorption recorded 677,000 square feet. A total of 360,050 square feet was delivered to the base with new construction completions. The Los Angeles market had the highest number of new construction deliveries, recording 259,100 square feet, with the Inland Empire following at 94,950 square feet and Orange County recording last at 6,000 square feet. Los Angeles (594,700 square feet) and Orange County (156,000 square feet) recording positive movement, while the Inland Empire fell negative (73,700 square feet). The Los Angeles County retail market saw positive movement, recording 594,700 square feet of absorption, marking the highest absorption in all three counties. Due to positive activity, vacancy decreased by 20 basis points to 3.8%. Asking rental rates recorded at $2.52 PSF NNN. The average asking rental rate was highest in the regional and super regional product type at $5.00 PSF NNN.

Orange County absorption recorded positive movement at 156,100 square feet. Total vacancy decreased by 20 basis points from last quarter to 4.1%. Approximately 305,800 square feet of retail space is under construction in Orange County. The Inland Empire retail market witnessed an increase in vacancy by 20 basis points to 8.6% during the first quarter. Overall net absorption recorded negative 73,700 square feet for the quarter. Much of this negative movement stemmed from tenant move-outs in the regional/super regional malls category.

Key Takeaways:

  • The vacancy rate for the Greater Los Angeles region decreased to 5.2%, down 20 basis points from last quarter. The vacancy rate a year ago stood at 5.7%.

  • The weighted average asking rental rate increased $0.01 from the previous quarter to $2.02 per square foot (PSF), triple net (NNN), per month.

  • Asking rents were highest in Los Angeles County at $2.52 PSF NNN and lowest in the Inland Empire at $1.51 PSF NNN. Super regional malls in Los Angeles County remain the most expensive space at $5.00 PSF NNN.

  • Annual national retail and food services sales for March 2018 increased by 4.5%.

  • According to Chapman University, California consumer confidence increased nearly eight points in the first quarter of 2018 to reach 121. This increase stems from hopeful outcomes of income tax reform and the continued rise of the stock market.

Outlook:

Demand for retail space in Orange County is expected to remain positive as new multifamily product continues to deliver in the market. The Laguna Hills Mall, which consists of 170,000 square feet, is the largest property currently being built in Orange County and is expected to be completed by the third quarter of 2018. Currently 920,600 square feet of new retail inventory is under construction in the Inland Empire. The largest project currently under construction is the 260,765-square-foot Renaissance Marketplace located in Rialto. The regional mall is expected to be completed by mid-2018.