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7/09/25
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This report provided by real estate services firm NAI Capital Commercial
In Q2 2025, the broader economy held steady. The anticipated “tariff surcharges” on consumer goods did not materialize, and job growth continued at a consistent pace, fueling spending and supporting demand for retail space in Los Angeles County. Still, landlords faced ongoing challenges. Absorption trends, while generally positive, lost momentum in the first half of the year, slowing the pace at which excess inventory was reduced.
Vacant retail space remained nearly flat from the previous quarter, reaching 19.3 msf. This total was still up 8.4% year-over-year and 4.1 msf higher than in Q2 2020—marking a historic peak. While the pace of vacancy growth has slowed—thanks in part to retailers backfilling space vacated during the wave of bankruptcies and closures among drugstores, apparel chains, and home goods stores—challenges remain. Total vacant space was still 1.5 msf above Q2 2024 levels.
The vacancy rate held at 6.2% quarter-over-quarter, up 50 basis points from Q2 2024. The slow pace of improvement underscores how far the market still has to go to return to pre-pandemic norms.
Average asking rents for direct space declined again—down 3.6% quarter-over-quarter and 4.6% year-over-year to $3.04 per square foot, triple net. Leasing activity also softened, with just under 1.3 msf leased in Q2, representing a 25.2% drop from Q1 2025. Year-to-date leasing volume was down 26.9% compared to the first half of 2024.
Persistent occupancy challenges have pushed landlords to continue offering concessions and lowering asking rents. Some investors, anticipating further pricing erosion, opted to sell. Despite that, total sales volume fell 47.4% from Q1, with just 1.5 msf sold—signaling a broader slowdown following a strong start to the year. At the same time, the average sale price for retail space declined to $375 per square foot—down 22.0% quarter-over-quarter and 27.8% year-over-year—evidence of a continuing price correction.
Still, when combined with a strong first quarter, total square footage sold year-to-date rose 75.1% compared to the first half of 2024. And despite the quarter-over-quarter dip, retail sales volume reached approximately $1 bil in Q2—up 11.9% from the same period last year. Opportunistic investors drove much of this activity, capitalizing on the current pricing environment and focusing on well-located assets.
This report was provided by J.C. Casillas, Managing Director, Research, NAI Capital Commercial
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