A recent wave of big-box move-outs, particularly in Southern California, has led to an increase in retail vacancy rates in Los Angeles, surpassing the national average during the first quarter of the year.
The retail vacancy rate in Los Angeles currently stands at 5.8%, which, despite being above the national average of 4.1%, remains within a healthy range.
This rise is primarily attributed to the closures of several prominent retailers, including Rite Aid, 99 Cents Only, and Joann.
According to JLL Managing Director Shauna Mattis, the bankruptcy filings of numerous retailers have resulted in an influx of retail space into the market.
As of year-to-date, net deliveries in Los Angeles are approximately 305,000 square feet in the negative, challenging the balance of the vacancy rate.
Though more space is becoming available due to these closures, the market is seeing a rapid absorption of vacated stores.
Geoffrey Grossman, principal at CBM1, noted the swift interest in larger spaces as they become available, indicating that demand remains strong despite the closures.
For instance, when Rite Aid’s bankruptcy was announced, Grossman received numerous calls from brokers eager to acquire sites that had Rite Aid as an anchor tenant.
Opportunities in these vacated locations have attracted diverse new tenants, including gyms and grocery stores.
A former Rite Aid location in Los Angeles, for example, was swiftly transformed into a Toyota dealership.
Mattis commented on the trend of healthy companies taking advantage of the opportunities left by struggling retailers.
Brokers have observed that locations vacated by companies undergoing bankruptcy are quite quickly filled by new tenants.
For instance, Burlington has signed on to take over shuttered Joann’s locations, a scenario that brokers had anticipated would occur.
According to Franc Magaña, Assistant Vice President at KWP, many retailers that go bankrupt typically choose locations that retain their value over time.
These desired locations generally boast favorable parking arrangements and strategic positions at busy intersections or shopping areas.
Magaña emphasized that the business model of a bankrupt tenant does not necessarily reflect the quality of the real estate itself.
Additionally, the volume of new retail supply coming onto the market is dwindling.
Currently, new retail development is emerging at a significantly reduced rate compared to past years.
During the first quarter, approximately 825,000 square feet of retail space was under construction, equivalent to about 0.2% of existing retail inventory.
Magaña described this limited pipeline of new developments as a noteworthy concern for the industry.
In a related trend, Los Angeles is witnessing the demolition of certain retail spaces as developers explore alternative uses such as residential or industrial developments.
From 2021 to 2024, around 4.5 million square feet of retail space was demolished in Los Angeles, while only 3.6 million square feet of new retail was introduced, reflecting a net loss of about 900,000 square feet, according to JLL.
However, brokers clarified that the demolished spaces are not typically the vacant Rite Aid or 99 Cents Only stores, but rather those near malls that are being redeveloped for new uses.
Dave O’Connell, principal at CBM1, noted that there are instances in West LA where the land value surpasses the benefits of retenanting the building.
However, he remarked that there are many big boxes which are currently being retenanting successfully.
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