Data Courtesy of CoStar™
The Los Angeles retail market continues to witness the softest demand formation among major U.S. markets in the first quarter, with -2.3 million SF of net absorption during the past 12 months. The market has had to grapple with multiple headwinds. Population losses in recent years and, more recently, meager population gains have stymied household formation and subsequently consumption growth. Softer economic fundamentals than most U.S. metros and elevated housing costs have left residents less confident in spending. Additionally, high interest rates weigh on operational costs and business formation.
Fortunately for landlords, retail construction has had a limited impact on the market's softness; total retail space in the market largely held steady during the past year. Additionally, over the past decade, total retail space has only increased by 1% as the market continues to right-size and remove obsolete inventory. Most recent large deliveries comprised auto dealerships.
12 Mo Deliveries in SF
12 Mo Net Absorption in SF
Vacancy Rate
12 Mo Rent Growth
12 Mo Sale Volume
Relatively stagnant tenant demand resulted in retail availability in Greater Los Angeles rising from 5.7% four quarters ago to 6.0%. Demand among all retail subtypes has been soft. Within the market, occupancies in the more suburban locations have largely fared better compared to the more urban locations, spanning from Downtown Los Angeles to Santa Monica. These areas have faced additional headwinds to demand in recent years, including lower inbound international tourists compared to pre-pandemic and more acute concerns around homelessness and crime.
Falling demand and weak consumption growth have driven rental rate losses since late 2023. Market-wide rents saw losses of -1.2% during the past 12 months, trailing the gains of 1.8% seen nationally. Among L.A.'s submarkets, more suburban locations with lower availabilities still see modest year-over-year gains, whereas many Westside locations are in negative territory.
The dynamics driving the Greater Los Angeles retail market's underperformance will persist for at least the near-to midterm. The forecast anticipates continued negative net space demand from retailers into the first half of 2025. Fortunately for owners, supply growth will remain modest, preventing a greater rise in availability. Given this backdrop, rent growth going forward will likely trail national gains. In this environment, developers and investors probably will exercise caution.
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