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2/25/20
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This report was provided by real estate services firm Cushman & Wakefield
ECONOMY: LA Retail Sales Reach Record-Heights In 2019
The Los Angeles economy continued to expand through the fourth quarter of 2019 with healthy employment growth of 1.8% year-over-year (YoY), adding 69,200 jobs through December 2019. The region boasts a Gross Metro Product (GMP) of $743 bil, which has grown 1.6% YoY. Tourism, a critical driver of retail activity, remains thriving as an estimated 50 million tourists visited the entertainment capital in 2019. According to Moody's Analytics, Los Angeles retail sales hit record levels of $193 bil amidst strong holiday season sales, posting peak growth of 4.1% YoY in 2019 while projected to maintain upward growth of 1.8% in 2020.
SUPPLY & DEMAND: Retail Leasing Momentum Going Strong
Los Angeles recorded robust retail leasing activity in 2019, totaling nearly 4.9 million square feet (msf) in transactions year-to-date (YTD), an 8.7% increase compared to the 4.5 msf leased in 2018. While apparel remains amongst the most active retail industries in the market, food users, fitness and wellness have trended as dominant retail space takers. A number of notable retailers secured space inthe Lower Westside in the final quarter of the year, serving as retail amenities to the recent influx of major tech and media firms to thearea. Despite amplified leasing velocity, net absorption recorded slight occupancy losses of 174,304 square feet (sf) YTD by the year-end mark. As a result, overall vacancy fluctuated over the twelve-month period ending in fourth quarter 2019, recording a 70-basis-point bump YoY to an average of 5.7% for all shopping center types. Power & regional centers maintained the lowest vacancy rate amongst retail product types at 4.4%, while relatively high asking rents led lifestyle centers to 9.9% vacancy. Retail construction deliveries totaling 1.2 msf contributed to the upswing in overall vacancy, however traction and lease-up of new retail inventory in the second half of 2019 will bring future occupancy gains in 2020. An additional 1.6 msf in major retail developments remain under construction, primarily concentrated on the Westside and in Downtown Los Angeles (DTLA). Significant projects include The Collection at Century Plaza, the 93,800-sf prime retail component of the property’s $2.5 billion revamp and the 176,000-sf retail plaza at the Frank Gehry-designed, mixed-use complex, The Grand in DTLA.
PRICING: Retail Asking Rents On the Rise
Despite retail closures and an uptick in vacancy, shopping center asking rents exhibited an upward trend in the second half of 2019, increasing 5.8% YoY to an average of $27.80 per square foot (psf) per year triple net. The majority of rent growth has been driven by premium high-street asking rates in the prime Los Angeles retail corridors where rates have held strong. The Beverly Hills Golden Triangle, comprised of Rodeo Drive, Canon Drive and North Beverly Drive, continues to attain the highest retail rents in the market, reaching as high as $850 psf. West Hollywood’s Melrose Avenue and Melrose Place follow behind commanding asking rates ranging from $180 psfto $240 psf. As retailers are increasingly seeking to lay bricks in Los Angeles’ prominent shopping destinations to promote new experiential, lifestyle and IRL retail concepts, landlords will continue to leverage tenant demand to help push rental rates in the year ahead.
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