Los Angeles County’s retail sector has been a story of resilience and adaptation in the third quarter of 2023. Three years post-pandemic, we are witnessing a nuanced recovery characterized by cautious optimism and strategic adjustments.
Market Recovery and Challenges
After the initial surge in demand for brick-and-mortar spaces post-pandemic, retailers are now grappling with economic survival, according to a recent Los Angeles Retail Market Outlook Q3 2023 report by NAI Capital. This shift has led to a significant slowdown in the pace of retail space vacancy. In Q3 2023, the increase in vacant retail space was just 150,000 square feet, a stark contrast to the 1.6 million square feet seen in the previous year. Although the total vacant space reached an all-time high of 18.2 million square feet, it’s nearing its peak, suggesting a gradual return to normalcy.
However, the retail landscape is still far from its pre-pandemic state, with an overall increase in vacancy of more than 1.9 million square feet since Q3 2020.
Adjustments in Pricing and Concessions
In response to slackened demand, landlords are becoming more flexible. This includes reduced asking rents and softer concessions, leading to a drop in the average sale price for retail space to $276 per square foot, a 17.2 percent decrease from the previous quarter. Interestingly, these price adjustments have spurred an increase in sales and leasing volumes, a positive sign for the market.
Trends and Future Outlook
Retailer Challenges and Opportunities
Retailers continue to combat the dominance of online giants like Amazon, alongside the rise of direct-to-consumer e-commerce models. Notably, Rite Aid’s recent bankruptcy filing and plan to cease leases at over 347 locations, including 30 in LA County, underscores the ongoing struggle. This move will undoubtedly impact the retail landscape, creating opportunities for competitors like CVS and Walgreens, and challenges for landlords.
Consumer Spending and Investment Trends
The Census Bureau’s report of national retail sales exceeding expectations in September is a beacon of hope. It signifies robust consumer spending across various platforms, strengthening the retail sector. However, investors should remain cautious, anticipating a potential slowdown in the fourth quarter due to tightening financial conditions.
Leasing and Sales Dynamics
The introduction of new construction in the retail market has not yet been met with equivalent demand. At the same time, the market has experienced a negative net absorption of 697,394 square feet over the past five quarters. Despite a 51.3 percent increase in sales volume over Q2, there was a year-over-year decline, reflecting the market’s ongoing adjustments and the evolving investor sentiment.
The LA County retail market in Q3 2023 presents a complex but hopeful picture. While challenges persist, the market is gradually finding its footing in the post-pandemic era.