So, the good news is occupancies in Los Angeles' retail sector have improved in recent quarters, after seeing vacancies rise for years, before and during much of the pandemic. Grocery stores and fitness centers have been important drivers of the market, taking large spaces in area shopping centers as well as mixed-use developments. Rents saw modest losses in 2020, but gains have accelerated since the beginning of last year and are up 3.4% from a year ago.
Construction is bifurcated among high-end retail in major mixed-use developments and small retail pads, usually with drive-thru capabilities. Large projects nearing completion include The Grand on Bunker Hill in Downtown Los Angeles and Hollywood Park in Inglewood.
Sales activity has been strong over the past year and demonstrates a multitude of investors remain focused on acquiring retail properties. Recent sales represent strategies across the risk spectrum, from well-leased, top-tier centers to challenging centers that require reinvention or redevelopment of the property's site.
The retail sector will need to evolve and right size by repurposing or demolishing defunct retail assets. Some longtime vacant big-box sites with excellent freeway access were acquired with plans to reposition them as industrial sites. For example, a vacant 140,000-SF former Costco site in Montebello was sold to a developer that reached an agreement with the city to convert a portion of the site to a last-mile delivery facility. Other longtime vacant sites have drawn interest from developers, especially along the region's expanding light rail system.
Los Angeles has some of the most prized and expensive retail real estate in the nation, much of which is on the Westside. Beverly Hills and its famed Rodeo Drive are world-renowned, but other high-street retail districts in Abbot Kinney, Santa Monica, and West Hollywood have rental rates that surpass the highest rates in most other markets.
One underlying advantage L.A. retail has compared to most markets in the nation is its relatively lower retail stock per capita. As an example, Los Angeles has about 20% less retail square footage than the Chicago metro despite having a higher population. Development is much harder to launch in L.A. than in more pro-growth metros with greater land availability, and potential retail sites compete with industrial and multifamily uses. While there is obsolete retail that needs to be filtered out of the local market, these properties are coveted for a variety of conversion options.
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