Q2 2024 Retail Market Outlook – Los Angeles
MARKET OVERVIEW
L.A. County’s retail market recovery, four years post-pandemic, continues at a slow pace. In Q2 2024, the retail sector saw another uptick in the vacancy rate, rising 20 bps quarter-over-quarter and remaining flat year-over-year at 5.7%. Leasing volume increased by 3.3% quarter-over-quarter but remained 13.0%below last year’s levels for the first half of 2024. At the same time, bankruptcies among major retail chains such as 99 Cents Only Stores and Rite Aid continue, with Big Lots also rumored to be at risk. Retail bankruptcies have become exceedingly common, compounded by revenue loss and further aggravated by higher supply chain and labor costs. California’s fast-food minimum wage increase to $20 an hour is the latest challenge. Since the wage mandate took effect in April, representing a 25% increase from the statewide $16 an hour minimum, California fast-food franchises have been cutting worker hours. Rubio’s Coastal Grill, citing rising business costs, abruptly shut down 48 restaurants in California. The move came two months after the state’s $20 an hour minimum wage took effect for fast-food employees.
TRENDS TO WATCH
As the economy evolves, the demand for retail space is shifting. Despite challenges, investor interest, especially in prime locations, remains strong. The average sale price for retail space increased by 59.5% compared Q2 2023, while the average asking rent for direct space rose by 3.7% over the same period. Deal velocity indicates that bid and ask prices are stabilizing. While sale volume on a square footage basis decreased by 26.9% quarter-over-quarter, it improved by 8.4% compared to midyear Q2 2023. The backfilling of retail space vacated by bankrupt retailers is expected to help maintain occupancy levels. In June, Dollar Tree Inc. announced it acquired leases and assets from 99 Cents Only Stores.
