LA’s Retail Prospects Darken, Report Shows
Values and volume drop while vacant space grew by 747,000 square feet in the second quarter
By Greg Cornfield July 24, 2023 11:05 am
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The fundamentals for Los Angeles County’s retail market are getting bleaker from sluggish demand, growing vacancy and a sinking sales volume.
Vacant space grew by 747,000 square feet to almost 19 million square feet in the second quarter of 2023, according to a report from NAI Capital. The new vacancy rate is 5.8 percent, surpassing the rate during the Great Recession 13 years ago. Occupancy is 3 million square feet lower than in the second quarter of 2020, which marked the beginning of the pandemic shutdowns.
At the same time, changing economic headwinds have caused a slowdown in the retail market and significantly weakened sales volume. The average sales price per square foot dropped by 13.2 percent year-over-year, and the sales volume based on square footage plummeted by 55 percent, totaling 4.4 million square feet year to date.
Net absorption was a negative 572,641 square feet quarter-over-quarter, resulting in a total negative absorption of 1.2 million square feet by midyear. Additionally, available sublease space rose by 17.1 percent compared to the previous quarter due to excess capacity from existing retailers.
However, landlords have not significantly reduced rents. The average asking rent in the region remained almost unchanged, with a slight increase of 0.7 percent compared to the previous quarter and just 0.3 percent higher than the same period last year.
The West L.A. submarket has the highest amount of available retail space, totaling 4.4 million square feet. The area’s available sublease space increased by 6.6 percent quarter-over-quarter, while asking rent for sublease space dropped 7.2 percent to $4.50 per square foot.
“Sublessors may need to bear additional costs to entice replacement tenants, and some may still face challenges in filling large, vacant space,” the report read. “However, many landlords have not significantly discounted their direct asking rents.”
With that said, West L.A. has the highest average rent in L.A. County, and absorbed some 68,705 square feet in the second quarter, resulting in a 10 basis point decrease in vacancy to 7.4 percent.
Gregory Cornfield can be reached at gcornfield@commercialobserver.com.
