The Los Angeles retail market has always been a vibrant and dynamic sector, reflecting the broader economic and cultural trends of Southern California. As we navigate through the complexities of 2023, we witness a landscape shaped by adaptation and opportunity. This post aims to distill the essential aspects of the Los Angeles retail market over the past year, with an eye to what to expect in the coming final 3 quarters of 2024. We will be making sense of the technicalities for those who may not be steeped in commercial real estate jargon.
A Year of Resilience and Recovery
The Los Angeles retail market in 2023 showcased resilience amid challenges, marking significant shifts in key indicators. Despite a slight decrease in leasing activity, with a 6.5% drop to 4 million square feet (SF), there's a silver lining as we see improvements elsewhere. Average asking lease rates saw a healthy increase of 2.8% year-over-year, reaching $2.42 per square foot (PSF), a testament to the enduring appeal of Los Angeles as a premier retail destination. This trend seems to have continued into the 1st quarter of this year as well.
One of the most encouraging signs was the positive net absorption recorded in the latter half of the year, totaling 1.6 million SF of newly occupied space. This indicates a growing demand and a gradual filling of previously vacant retail spaces. The development pipeline also remained robust, with 3.9 million SF underway, ensuring a steady flow of new retail environments to meet diverse consumer needs as we move further into 2024.
The Changing Face of Los Angeles Retail
In 2023, the Greater Los Angeles area witnessed a notable change in net absorption, recording 1.2 million SF after several quarters of occupancy loss. This positive shift contributed to a significant reduction in vacancy rates, which dropped to 5.99%. Additionally, the market welcomed 26,000 SF of new inventory from completed development projects, further diversifying the retail offerings available to consumers.
The average asking lease rates in Los Angeles concluded the year on a high note at $2.84 PSF, signaling a rebound from previous quarters. This rate, while slightly below the four-year peak, reflects the market's ongoing adjustments and the value placed on premium retail locations. This trend also seems to be continuing in the current year. We’ll know more when those numbers come out.
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Orange County and Inland Empire: A Comparative Perspective
The Orange County retail market echoed this positive momentum, closing the year with a vacancy rate drop to 4.78%. Net absorption turned positive, with Power Centers leading the change, showcasing the diversity and resilience across Southern California's retail sectors.
Conversely, the Inland Empire's retail market highlighted a different aspect of growth. With a 10-year low vacancy rate of 6.08% and an increase in asking lease rates, this area underscores the broad appeal of the Los Angeles basin's retail environments.
The Los Angeles Basin Overall
Zooming out, the Los Angeles Basin, with its extensive inventory of over 864 million SF, stands as a testament to the region's expansive retail ecosystem. Single-tenant buildings, comprising nearly half of this inventory, underscore the variety and scale of retail operations catering to a wide array of consumer preferences.
Insights and Opportunities
The Los Angeles retail market's journey through 2023 was one of nuanced growth and strategic adaptation. For investors and stakeholders, these trends underline the importance of informed decision-making and strategic investment in a market that, despite its challenges, offers significant opportunities for growth and diversification in the current year.
As we look to the future, the Los Angeles retail market remains a dynamic arena for commercial real estate investment. However, it's crucial to acknowledge the inherent risks and rewards associated with such ventures. For those considering entering or expanding their footprint in this sector, the guidance of a seasoned commercial real estate investment expert is invaluable.
A Certified Commercial Investment Member (CCIM), offers a depth of knowledge and experience in navigating the complexities of the Los Angeles retail market. With a keen understanding of market trends and a strategic approach to investment, I am well-equipped to assist clients in making informed decisions that align with their investment goals.
If you're considering an investment in commercial real estate, particularly within the vibrant and evolving Los Angeles retail market,
I invite you to reach out for advice and assistance. Together, we can explore the opportunities that this market presents, ensuring a strategic approach to your investment journey.
Brion Costa, CCIM
Century 21, Commercial
626-695-7385
DRE#: 00939864
