By Lilly Riddle
Even though the Southern California retail market continues to experience a challenging environment, positive indicators show that it remains resilient. Leasing activity is down 11 percent from last quarter, and leasing rates continue to rise even with an increased negative net absorption. Overall, the market remains strong, with 2.85 million square feet under construction across Los Angeles County, Orange County and the Inland Empire. The industry expects to see as much as 414,000 square feet of completions this quarter.
According to the Colliers 2024 Greater Los Angeles Area Retail Report, the first quarter of 2024 saw rises in vacancy rates in each of the three markets measured — Los Angeles County, Orange County, and the Inland Empire — and a market-wide vacancy rate of 6.1 percent. The rate in Orange County surpassed 5 percent for the first time in a decade, “signaling a notable change in market conditions,” and similar increases occurred in LA County and the Inland Empire. Still, the report notes that “the overall trend in vacancy rates remains on a downward slope for the past four years.”
At the same time, there were across-the-board increases in asking lease rates, continuing an upward trend from the previous three quarters. The report states that the average asking rent was $2.47 per square foot this quarter, “a level not seen since 2007,” up 6 cents from the fourth quarter of 2023 and up 4.5 percent year-over-year. However, this changes to $1.86 in the Inland Empire, $2.59 in Orange County and $2.85 in Los Angeles County. The largest transaction of this quarter was a 63,000-square-foot lease by Vallarta Supermarkets at the Bellflower Towne Center in Los Angeles County. In Orange County, leasing activity experienced a slight decrease of 6% from last quarter, closing at 661,000 square feet, but overall the region remained relatively steady over the past three quarters. In the Inland Empire, the market saw a 10 percent increase from last quarter with a total of 1.2 million square feet leased, the report stated.
In terms of development, the Inland Empire saw more than 352,000 square feet of completions in the first quarter. Most of it, 158,461 square feet, came from community and neighborhood centers, but significant portions — 141,183 and 45,957 square feet — were for single-tenant buildings and strip centers, respectively. One million square feet of development is in the pipeline in the Inland Empire, with a 138,000-square-foot center in Adelanto, California expected to be completed in the first quarter of 2025.
In Los Angeles, 1.8 million square feet were recorded as under construction, and there were 49,643 square feet of completions. In Orange County, another 11,758 square feet was completed. Overall, 414,002 square feet of construction was completed, with most of it — 188,977 square feet — meant for single-tenant buildings.
One persistently unfavorable aspect of the report highlights the negative net absorption across the three submarkets, totaling 843,000 square feet. The report indicated that this figure increased in the first quarter, with a forecast of continued movement upward. Los Angeles County saw 596,138 square feet of negative net absorption, with 176,238 and 71,413 square feet in Orange County and the Inland Empire, respectively. Most of LA’s negative net absorption — 196,085 square feet — came from super regional and regional malls, while most of the overall negative net absorption was due to power centers, which saw 319,978 square feet of vacated space.
Macroeconomic and employment trends were also noted in the Colliers report, with unemployment rates in Los Angeles County, Orange County and the Inland Empire recorded as 5 percent, 4.2 percent and 5.5 percent — below California’s average of 5.6 percent, but above or matching the U.S. average of 4.2 percent. Employment in wholesale trade and retail has shrunk over the past year, but there has been growth in leisure and hospitality jobs. Actual employment declined over the previous 12 months in wholesale trade by 2,900 jobs and retail trade by 3,200 jobs but grew in the leisure and hospitality sector by 9,500 jobs.
