Although the Los Angeles retail market has had robust leasing through 2024, many other spaces also became available, especially among the restaurant/hospitality sector. This plays into the fact that Los Angeles has had the softest demand formation among major U.S. markets in the first quarter, with -2.4 million SF of net absorption during the past 12 months. Other issues playing into this softer demand can be attributed to population losses in recent years, meager population gains that have hindered household formation and subsequently lower consumer demand, tied to elevated housing costs have left residents less confident in spending. Additionally, high interest rates, higher wages, and other governmental oversite has weighed on operational costs and business formation.

Fortunately for current landlords, retail construction has had little impact on demand, as the total available retail space in this submarket has been stable for the past year. Couple this with low growth (just 1.0% in available space in the last decade) for the last decade in total retail space, has helped landlord maintain rents due to these supply constraints.

Overall vacancy has remained relatively stable, rising from 5.7% from the first quarter of 2024, to only 6.1%. Within the market, we are seeing more demand in prime neighborhoods, as well as the more suburban locations. Other areas, such as Downtown LA, Santa Monica, and Hollywood have faced additional headwinds to demand in recent years, including lower inbound international tourists compared to pre-pandemic and more acute concerns around homelessness and crime.

Although vacancy has risen, we have seen a little loss in market rents of approximately -1.0% during the past 12 months, trailing the gains of 1.8% seen nationally. The last quarter rents have remained stable, without much if any loss in most submarkets. Among L.A.'s submarkets, more suburban locations with lower availabilities still see modest year-over-year gains, whereas many Westside locations are in negative territory.

Expectations are that the underperformance of the greater Los Angeles retail property markets will continue for at least the near-to-midterm, with growth expected to start later this year, but rents and availability remaining stable, primarily due to lack of supply growth.

The Los Angeles retail market sales for the last year have been relatively stable, but below the typical quarterly average over the past decade (about 1/3 less in dollar sales volume).We are seeing more private buyers vs. institutional buyers being active in the marketplace, with their share of properties they have acquired growing 10% to 80% of the market (vs. the historical average of 70%). Sales to institutional buyers, private equity, and REITs have slowed. Typically this group of buyers account for around 20% of all sales; however, this past year they only represented around 5% of the buyers.