12 Mo Deliveries in SF
0 .2 M
12 Mo Net Absorption in SF
( 0 .1 M)
12 Mo Rent Growth
– 0 .9%
12 Mo Sale Volume
$ 0 .4 B
Los Angeles’ retail sector is particularly exposed to the impacts from the pandemic, but recently hope has surfaced that the metro, as well as the nation, may be turning a corner with the pandemic. The national vaccination program is now well underway, and in March, President Biden announced all American adults should have access to vaccines by May. Relative normalcy could arrive soon, which would be welcome news to retailers and retail landlords.
However, even if the pandemic gets fully under control, the issues the sector previously faced (competition from e-commerce sales, increasing inequality, and evolving consumer tastes) are still very much in the background. The sector will continue to need to involve and rightsize by repurposing or demolishing defunct retail properties.
Vacancy has been rising for years, and all plausible economic scenarios that inform CoStar’s property market forecast anticipate market vacancy to continue to ascend for at least the near term. Rental rates will also likely continue to face headwinds through the rest of the year.
The current construction pipeline is modest and will have little impact on market fundamentals on a metro-wide basis; however, developers face a bleak leasing environment at the moment, and projects without tenants in tow are likely to be hard-pressed to secure tenants. Regarding capital markets, the pandemic has had a dampening impact on transaction volumes.
However, some investors are undeterred and continue to move forward with allocating capital to the retail sector.
Los Angeles has some of the most prized and expensive retail real estate in the nation, much of which is on the Westside. Beverly Hills and its famed Rodeo Drive are world renowned, but other submarkets, such as Santa Monica and West Hollywood, also have retail space that commands among the highest rental rates in the nation. The metro benefits from a relatively high percentage of affluent households, as well as high population densities, to drive spending in the region.
One underlying advantage L.A. retail has compared to most markets in the nation is its relatively lower retail stock per capita. As an example, Los Angeles only has 2% more total retail square footage than Dallas-Fort Worth, despite the metro having a third more people than D-FW. Development is much harder to launch in L.A. than in more pro-growth metros with greater land availability. While there is obsolete retail that needs to be filtered out of the local market, the metro is less “over- retailed” than many other parts of the nation.