Data Courtesy of CoStar™
The Los Angeles retail market continues to witness the softest demand formation among major U.S. markets in the second quarter.
Net absorption during the past 12 months, -490,000 SF, represents among the weakest activity seen during this time among major U.S. metros. Year-to-date absorption has been negative.
The market has had to grapple with multiple headwinds. Population losses in recent years and, more recently, meager population gains have stymied household formation. Softer economic fundamentals than most U.S. metros and elevated housing costs have left residents less confident in their financial positions. Additionally, high interest rates weigh on business formation.
Fortunately for landlords, retail construction has had a limited impact on the market's softness; supply growth during the past year represents an expansion of only 0.2%. Additionally, over the past decade, total retail space has declined as the market continues to right-size and remove obsolete inventory. Most recent large deliveries comprised auto dealerships, meaning the expansion of shopping center and ground-floor retail space was relatively more modest.
12 Mo Deliveries in SF
12 Mo Net Absorption in SF
Vacancy Rate
12 Mo Rent Growth
12 Mo Sale Volume
Muted levels of new supply in the face of stagnant tenant demand resulted in retail availability in Greater Los Angeles, 6.0%, holding in a narrow range. 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.
Limited retail space absorption has driven some of the weakest rent growth seen among major U.S. metros in recent quarters. Market-wide rents have only shifted by -0.1% during the past 12 months, trailing the gains of 2.7% seen nationally. Among L.A.'s submarkets, many more suburban locations with lower availabilities still see modest year-over-year gains, whereas many Westside locations are in negative territory.
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