With retail construction at its lowest first-half level since at least 2007, Los Angeles landlords are backfilling vacated big-box space and pushing multi-tenant vacancy below its five-year average, while Measure ULA continues to push large shopping center deals outside city limits.
Los Angeles retailers spent the first half of 2026 competing for space that barely grew, and the resulting scarcity is starting to show up in the numbers that matter most to landlords: falling vacancy, firming leasing activity and the strongest quarter for retail investment sales the metro has seen in four years. Marcus & Millichap’s third-quarter 2026 Los Angeles Metro Area Retail Market Report found multi-tenant vacancy compressed 50 basis points year over year to 7.3 percent in June, as off-price retailers, fitness operators and grocers backfilled big-box spaces vacated in prior years. More than 600 lease commitments were signed across neighborhood and strip centers during the first half, and multi-tenant vacancy now sits 10 basis points below its prior five-year average, according to the report.
“Los Angeles retail fundamentals are showing signs of improvement as limited new supply and active leasing help bring supply and demand into better balance,” said Tony Solomon, the firm’s senior managing director and market leader, in the report. Six of the metro’s 11 major submarkets, including Downtown Los Angeles and other urban core areas, saw vacancy compress over the year ended in June, a trend Solomon linked to improving office and apartment occupancy that could extend consumer demand into urban retail corridors.
Construction, or the near-total lack of it, is doing much of the work behind that tightening. Retail inventory expanded by just 162,000 square feet from January through June, the lowest first-half total in the metro since at least 2007, according to the report, which cites CoStar Group data. Nearly half of that new space came online in Antelope Valley alone, while Downtown Los Angeles, the Westside Cities and the San Fernando Valley added no new retail supply whatsoever during the period. The pipeline isn’t set to loosen meaningfully soon, either: San Pedro’s West Harbor, the 42-acre waterfront food hall and retail development from Ratkovich Company and Jerico Development anchored by a 55,000-square-foot San Pedro Fish Market restaurant under a 49-year lease, together with a shopping center under construction in the San Gabriel Valley, accounted for 80 percent of the metro’s active retail construction pipeline as of July.
The single-tenant sector tells a starkly different story than the multi-tenant recovery. Single-tenant vacancy climbed to a record 6.4 percent in June, 90 basis points above its prior five-year average, and restaurant vacancy specifically sits at a historically elevated 6.0 percent, according to the report. Less than 30,000 square feet of single-tenant space was under construction in late July, which should eventually support absorption but hasn’t yet reversed the trend. Average asking rent across the metro is forecast to reach $32.35 per square foot by year-end, down 1.5 percent year over year, and shopping center asking rents specifically have fallen $3 per square foot over the past six quarters — a decline the report attributes to the quality and location of available space rather than softening tenant demand, since multi-tenant absorption has outpaced completions over that stretch. Single-tenant asking rent has dipped 2.5 percent over the trailing 12 months amid that record vacancy.
Investment sales activity is where the market’s improving fundamentals show up most clearly. Transaction volume rose 18 percent year over year over the 12 months ended in June, and second-quarter deal flow reached its highest level since summer 2022, according to the report. “Investors are responding to improving market conditions, with transaction activity reaching its strongest quarterly level in several years,” Solomon said. A comparable number of single-tenant assets and shopping centers changed hands during the first seven months of the year, with 60 percent of those deals selling for less than $5 million; private investors were most active acquiring restaurants, notable given that segment’s elevated vacancy, while strip centers traded for an average of roughly $230 per square foot, well below the metro’s broader per-square-foot pricing.
Two policy threads run through the report’s investment picture. Measure ULA, Los Angeles’ transfer tax on property sales above $5 million — a 4 percent surcharge between $5 million and $10 million, rising to 5.5 percent above $10 million — continues to shape where large retail deals get done: through July, nearly all shopping center transactions above $10 million involved properties outside the city of Los Angeles proper, as sellers and buyers structure around the tax by favoring nearby jurisdictions. That dynamic is creating what the report frames as upside opportunity for larger, well-capitalized owners willing to backfill locally elevated vacancy in submarkets like San Fernando Valley and South Bay. Separately, Assembly Bill 1679, which would create an expedited permitting pathway allowing pop-up food businesses to occupy storefronts for three-month terms without the months-long inspection delays that currently discourage temporary tenancies, had advanced to Governor Gavin Newsom’s desk as of late August. Given Los Angeles’ standing as one of the country’s top markets for pop-up retail, the report frames the bill’s fate as a priority for investors looking to activate vacant storefronts on a short-term basis.
Solomon’s more cautious note concerned the industry that has long anchored certain Los Angeles retail corridors. “The migration of film and television production to competing markets has created challenges for retailers in some entertainment-oriented districts,” he said, an observation that lines up with independent data from FilmLA showing on-location production in the second quarter fell 12 percent year over year, with reality television shoot days down 40 percent and feature film production down nearly 20 percent — a quarter that came in 36 percent below the metro’s five-year average. That contraction helps explain why the metro’s job growth, while positive, remains concentrated elsewhere: Los Angeles County added 18,500 positions in the first half of 2026 after shedding 5,000 in the prior six months, with health services leading the gains and additional strength in hospitality and food services, according to the report.
Taken together, the report describes a market bifurcating along the same lines as its investment sales activity — capital and tenant demand concentrating in well-located, neighborhood-serving retail supported by residential density and diversified employment, while single-tenant assets, restaurant space and entertainment-adjacent districts continue to carry disproportionate vacancy. With construction at its lowest first-half pace in nearly two decades, that concentration looks likely to persist through the balance of the year.
