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4/16/25
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This report provided by real estate services firm NAI Capital Commercial
MARKET OVERVIEW
In Q1 2025, the broader economy holds steady despite the threat of “tariff surcharges” raising costs for consumer goods, with employment continuing to drive spending and support retail space demand in Los Angeles County. Yet landlords face mounting challenges, as retail space absorption shows mixed but generally positive momentum, with excess inventory gradually declining.
Vacancy continued its upward trend in Q1 2025, reaching 19.5 msf—up 2.1% quarter-over-quarter and 10.2% year-over-year. Although elevated compared to the 2019 pre-pandemic average of 4.4%, the pace of growth slowed thanks to retailers backfilling spaces vacated during last year’s wave of bankruptcies. Still, with vacancy nearly 1.8 msf higher than a year ago, the market has a long way to go before returning to pre-pandemic norms.
Unsteady occupancy trends have prompted landlords to maintain concessions and lower asking rents. Some investors, anticipating further erosion, pivoted to a selling strategy. The median sale price for retail space fell to $469 per square foot—down 1.9% from Q4 2024 and 9.2% year-over-year. This price adjustment helped drive a 102.7% increase in square footage sold compared to Q1 2024. However, on a quarter-over-quarter basis, total sale volume fell 32.6%, totaling 2.9 million square feet—down from the strongest fourth-quarter performance since 2021.
Despite that dip, sale volume totaled approximately $392 mil in Q1—up 19.7% from the same time last year. Opportunistic retailers helped drive activity, capitalizing on value plays left behind by failed chains. For example, Super King Markets acquired a 43.8k sf neighborhood center in Culver City’s West LA submarket—formerly occupied by Big Lots—for $23.4 mil, or $544 per square foot.
Meanwhile, average asking rents for direct space continued to decline, down 0.6% quarter-over-quarter and 1.6% year-over-year to $3.08 per square foot triple net. Leasing activity also softened, with just over 1.5 msf leased—down 23.2% from the previous quarter and 17.8% year-over-year.
TRENDS TO WATCH
Landlords and sublessors will likely continue adjusting asking rents to improve cash flow and fill available space. LA West, which contains roughly 5.4 msf of available retail space—the most in the county—saw asking rents for direct space fall 1.9% year-over-year to $4.71 per square foot triple net. This modest decline hasn’t sparked stronger demand, with many sublessors offering competitive terms to entice tenants.
Sublease space experienced notable adjustments. Average asking rents declined 25.8% year-over-year at the start of Q1 2025, with high-priced listings seeing the steepest cuts. At the same time, available sublease inventory declined 7.1% year-over-year. Still, LA West recorded 159k sf of negative net absorption. While less severe than in Q4 2024, the trend pushed the vacancy rate to 8.1%—a 70-basis-point year-over-year increase and the highest in the county.
Property owners are expected to keep offering incentives to attract replacement tenants, but backfilling large, vacated spaces remains difficult. Expanding retailers are actively targeting well-located space—especially those available for sublease or vacated following last year’s retail bankruptcies.
In the South Bay—home to the most retail space construction in the county—the West Harbor waterfront project, totaling approximately 256k sf of phased development, serves as a bellwether for the broader market. As one of L.A.’s largest retail submarkets, the South Bay saw average asking rents for direct space decline 5.2% year-over-year and 4.5% from the prior quarter. This downward pressure appeared to support tenant demand, as the South Bay posted 86.1k sf of positive net absorption—the only submarket to do so in Q1 2025.
In Q1 2025, the average sale price for retail properties in Los Angeles County reached $455 per square foot, up 7.3% from Q4 2024. However, total square footage sold fell 32.6% quarter-over-quarter, reflecting growing price sensitivity as investors adjust to a market still finding its balance.
Heading into the second half of 2025, new tariff surcharges remain a significant uncertainty, potentially raising retail goods prices and curbing leasing activity in Los Angeles County’s retail market. Despite the uneven recovery, a mix of strategic concessions—such as flexible lease terms—and opportunistic investments point to cautious momentum in the market. Competition for prime retail space is expected to intensify, driving further activity, as pricing trends—elevated sale prices for prime locations, softening asking rents for subprime spaces—reflect a mix of investor confidence and survival strategies, as retailers, sublessors, landlords, and investors position themselves to capitalize on a sector navigating its recovery.
This report was prepared by J.C. Casillas, Managing Director, Research, NAI Capital Commercial
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