Greater Los Angeles Retail Continues Positive Market Activity

The Los Angeles Basin retail market closed the third quarter on a positive note as net absorption recorded 1,084,900 square feet. An approximate total of 1.1 million square feet was delivered to the base with new construction completions. The Orange County market had the highest number of new construction deliveries, recording 438,900 square feet, with Los Angeles following with 361,200 square feet and Inland Empire recording lowest with 288,300 square feet. All three counties recorded positive tenant movement with Orange County recording 728,900 square feet of net absorption with Los Angeles County (277,800 square feet) and Inland Empire (288,300 square feet) following suit.

National retail and food services sales for August 2018 increased by 6.6% compared to one year ago. Given higher consumer confidence and a growing economy, this holiday season is expected to be a good one for retailers. It is reported, per GlobalData, that 63.1% of consumers are planning to spend more than they did last year, while 24.3% are expected to spend the same and 12.6% are expected to spend less. 

The Los Angeles County retail market saw positive movement, recording 227,800 square feet of absorption, marking the second highest absorption in all three counties. Total vacancy decreased by 10 basis point from last quarter to 3.9%. Asking rental rates recorded at $2.53 PSF NNN. The average asking rental rate was highest in the regional and super regional product type at $4.38 PSF NNN. A notable lease transaction in the Los Angeles County market was Bed Bath and Beyond leasing 30,477 square feet at 12056 Lakewood Boulevard in Downey.

The Inland Empire retail market witnessed a decrease in vacancy by 10 basis points to 8.3% during the second quarter. Overall net absorption recorded 177,400 square feet for the quarter. Much of this positive movement stemmed from tenant move-ins in the community and neighborhood centers category. Average asking rents increased $0.08 PSF NNN from last quarter to end the second quarter at $1.65.

Key Takeaways:

  • The vacancy rate for the Greater Los Angeles region decreased to 5.2%, down 10 basis points from last quarter. 
  • The vacancy rate a year ago stood at 5.4%. Los Angeles and Orange County recorded the lowest vacancy rate at 3.9%, while Inland Empire recorded a vacancy rate of 8.3%.
  • The weighted average asking rental rate increased $0.02 from the previous quarter to $2.06 per square foot (PSF) triple net (NNN), per month. 
  • Asking rents were highest in Los Angeles County at $2.53 PSF NNN and lowest in the Inland Empire at $1.65 PSF NNN. 
  • Super regional malls in Los Angeles County remains the most expensive space at $4.38 PSF NNN.

Outlook:

Currently, a total of 1,313,400 square feet of retail space is under construction in Los Angeles County. The largest project under construction is 6200 E 2nd St., in Long Beach, consisting of 255,000 square feet. The anchor tenant is Whole Foods and the project is expected to be completed by mid-2019. Approximately 733,000 square feet of retail space is under construction in Orange County. The Tustin Legacy, which consists of 220,000 square feet, is the largest property currently being built and is expected to be completed by the end of 2018. 1,236,600 square feet of new retail inventory is under construction in the Inland Empire. The largest project under construction is the 260,765 square foot Renaissance Marketplace located in Rialto. The regional mall is expected to be completed by year-end.

National retail and food services sales for August 2018 increased by 6.6% compared to one year ago. Given higher consumer confidence and a growing economy, this holiday season is expected to be a good one for retailers. It is reported, per GlobalData, that 63.1% of consumers are planning to spend more than they did last year, while 24.3% are expected to spend the same and 12.6% are expected to spend less.

Development in Orange County is a challenge as many industrial properties and development sites are converted to residential and other commercial uses. In the Inland Empire, new construction is expected to average about five million square feet a quarter for the rest of the year.