Retail occupancy ticks up in LA County at the close of 2023

Report details slow recovery as excess shopping space is “worked out of the market”

Retail Occupancy Ticks Up in LA County During 2023
(Illustration by The Real Deal with Getty)

While more storefronts across Los Angeles County were filled last year, the retail market still struggled to stay healthy.

Vacancy in 2023 declined from its pandemic high with 17.6 million square feet of vacant stores in the fourth quarter, the Commercial Observer said, citing a report from NAI Capital.

Occupancy rose 715,400 square feet from the prior quarter, but leasing was down 9 percent compared to 2022 — with the overall amount of leased retail space 1 million square feet lower than 2020.

“Demand for retail space has resulted in a mixed trend, leaning towards the positive side as excess retail space is gradually being worked out of the market,” the NAI Capital report said. “Still, the retail market has a way to go to return vacancy to ‘normal’ levels.”

The uptick in retail occupancy has allowed landlords to begin reducing concessions, while solidifying asking rents.

While sales of retail properties rose 3.6 percent in the three months ending in December, total sales last year were 45 percent below 2022, in line with national sales of commercial properties slowed by higher interest rates.

But at the same time office values have plummeted because of vacancies caused by a shift to remote work, the value of shops and restaurants has risen, according to NAI Capital. The average sale price for retail properties was $426 per square foot — 6.7 percent more than in 2022.

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“Investors have resisted ‘fire sale’ lowering prices to close deals,” the brokerage’s report said. 

Last year, such national retailers as Rite Aid, Bed Bath & Beyond and Tuesday Morning declared bankruptcy, forcing closures in the U.S. and Los Angeles.

At the same time, many companies that favored online sales during the pandemic have pivoted back to brick-and-mortar, according to NAI. 

L.A.’s Westside is the top-performing submarket in the region, with the highest retail rents.

But it also had 4.4 million square feet of available retail shops and restaurants, the highest in the region. West Los Angeles had 536,600 square feet of negative absorption as vacancy increased 0.8 percent to 7.8 percent.

“In 2024, the competition for well-located retail space will persist, driving the market,” NAI Capital concluded. “Investors are capitalizing on opportunities. … Retailers, sublessors, landlords and investors will continue to aggressively compete as the retail sector recovers.”

— Dana Bartholomew

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