Q4 2017 – Research and Forecast Report
The Los Angeles Basin retail market closed the fourth quarter on a positive note as net absorption recorded 1.5 million square feet (SF). A total of 766,600 SF was delivered to the base with new construction completions. The Inland Empire market had the highest number of new construction deliveries recording 439,700 SF, with the Los Angeles following at 214,900 SF and Orange County recording last at 112,000 SF. All counties recorded positive absorption: Los Angeles County (479,000 SF), Inland Empire (813,400 SF) and Orange County (396,800 SF).
The vacancy rate for the Greater Los Angeles region decreased to 5.1%, down 30 basis points from last quarter. The vacancy rate a year ago stood at 5.7%. Los Angeles County recorded the lowest vacancy rate at 4.0%, a decrease of 20 basis points. Orange County followed, recording a vacancy of 4.3%, with no change from last quarter, while the Inland Empire recorded the highest vacancy rate at 7.9%, a decrease of 50 basis points.
The weighted average asking rental rate increased $0.03 from the previous quarter to $2.03 per SF, triple net (NNN), per month. Asking rents were highest in Los Angeles county at $2.64 PSF NNN and lowest in the Inland Empire at $1.47 PSF NNN. Super regional malls in Los Angeles County remain the most expensive space at $5.32 PSF NNN.
Annual national retail and food services sales for December 2017 increased by 5.4%. According to the Conference Board, consumer confidence declined in December after reaching a 17-year high in November 2017. The decline stems from a less optimistic future outlook for business and job prospects. However, consumer assessment of current conditions remain at historically strong levels, suggesting economic growth will continue well into 2018.
LOS ANGELES COUNTY
The Los Angeles County retail market saw positive movement, recording 479,000 SF of absorption. Year-to-date absorption totaled 986,100 SF. Due to positive activity, vacancy decreased by 20 basis points to 4.0%. Asking rental rates recorded at $2.62 PSF NNN. The average asking rental rate was highest in the super regional and super regional product type at $5.32 PSF NNN.
Currently, a total of 1,318,400 SF of retail space is under construction in Los Angeles County. The largest project under construction is 5601 Santa Monica Boulevard in Hollywood, consisting of 258,900 SF. The project is expected to be completed by early 2019. A notable lease transaction in the Los Angeles County market was Plant Fitness leasing 20,000 SF at 515 W. Arrow Highway in San Dimas
Orange County absorption recorded positive movement at 185,100 SF. Total vacancy remained unchanged from last quarter at 4.3%. Demand for retail space in Orange County is expected to remain positive as new multifamily product continues to deliver in the market. The overall average asking rental rate increased in comparison from last quarter, increasing $0.03 to $2.21 PSF NNN.
Approximately 483,2000 SF of retail space is under construction in Orange County. The Laguna Hills Mall, which consists of 170,000 SF, is the largest property currently being built and is expected to be completed by the third quarter of 2018.
Inland Empire retail market witnessed a decrease in vacancy by 50 basis points during the fourth quarter to 7.9%. Overall net absorption recorded positive at 813,400 SF for the quarter. Much of this movement stemmed from new retail product delivering to the market. Average asking rents increased $0.01 PSF NNN from last quarter to end the fourth quarter at $1.47 PSF NNN.
Currently 1.1 million square feet of new retail inventory under construction in the Inland Empire market. The largest project currently under construction is the 260,765 SF Renaissance Marketplace located in Rialto. The regional mall is expected to be completed by mid-2018. A notable lease transaction in the Inland Empire market was Burlington Coat Factory leasing 40,000 SF at 121 E. Foothill Boulevard in Upland.