Leasing activity in the Greater Los Angeles retail market continues to decline, with landlords struggling to recover from earlier big box closures and retail chain bankruptcies.
The overall vacancy rate in Greater L.A. increased 10 basis points in the third quarter to 5.7 percent, while net absorption checked in at negative 274,000 square feet, according to the latest retail market report from CBRE.
The Greater L.A. market saw vacancy increases in every submarket except the South Bay and Santa Clarita Valley, CBRE found. The San Fernando Valley was the biggest strain on the overall retail market, with negative 125,000 square feet in net absorption.
Overall average asking lease rates were down 3.8 percent quarter-over-quarter to $2.78 per square foot, which was attributed to the slight increase in vacant space.
There were some bright spots: The region’s most expensive submarket, West LA, had the best showing in the third quarter, with average lease rates increasing to $10.36 a square foot, up $2.83 a foot in the prior quarter. Activity was driven by deals in the Rodeo Drive Collection and the Third Street Promenade in Santa Monica.
From July to September, overall retail leasing activity in the region was dominated by fitness and food– as was the case in the second quarter. Whole Foods, Golds Gym and Planet Fitness all leased over 20,000 square feet in the quarter.
The brokerage’s report raised a caution flag regarding the impact of fast-fashion Forever 21’s closures in the Greater L.A. area. The retail chain, which filed for federal bankruptcy protection in September, announced plans to close up to 178 U.S. stores, 20 of which are located in the L.A. area, according to CBRE.
These properties could provide opportunities for other retailers to “expand and infiltrate tight submarkets that they might not have been able to otherwise,” the report said.
Much of the retail industry nationally remains in a tailspin. In February, Payless ShoeSource was one of the largest retailers to slip into bankruptcy and shutter its stores. A host of other retailers continue to feel the heat, most recently Barney’s New York, which went bankrupt in August. The famous retailer has a store in Beverly Hills.
Looking ahead, about 352,000 square feet of new retail product is expected to be delivered by the end of the year in Greater L.A. CenterCal’s 2nd and PCH project in Long Beach is the most highly anticipated, with about 255,000 square feet of retail space slated to open. Much of the space is pre-leased to tenants such as Whole Foods, Lululemon, Warby Parker and Athleta.
Over 1.3 million square feet of retail space is expected to be delivered in 2020, approximately half of it in Downtown L.A.