A wave of big-box move-outs partially concentrated in Southern California drove the Los Angeles retail vacancy up above the national average in the first quarter.
The 5.8% vacancy rate in LA is still within a healthy range but reflects the impacts of closures of retailers like Rite Aid, 99 Cents Only and Joann. Nationwide, retail vacancies sit at 4.1%, according to JLL.
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“As a large number of retailers go through the bankruptcy process, it has produced more retail space coming into the market,” JLL Managing Director Shauna Mattis said. With net deliveries year-to-date at roughly 305K SF in the negative, it’s balancing out to keep the vacancy rate mostly in the same place.
But the vacated stores are being quickly backfilled — in some cases, it happened before they even hit the market.
“When bigger spaces become available, actually they're being absorbed rather quickly,” CBM1 principal Geoffrey Grossman said. When Rite Aid’s first bankruptcy hit the news, Grossman said, “I had brokers calling me like crazy for a few sites of shopping centers that I handled that had Rite Aid as the anchor.”
All manner of new tenants want into these spaces, he said, including gyms and grocery stores. Grossman cited one former Rite Aid in the LA area where Toyota had moved into the space and revamped it as a dealership.
“You're seeing the tenants that are healthy capitalizing on the opportunities that are coming through from the tenants that were not healthy,” Mattis said.
Brokers all pointed to cases in which stores vacated by companies going through bankruptcies were quickly snapped up by companies that wanted to take on the locations, as was the case with Burlington signing on to take over shuttered Joann’s locations. This was something brokers had previously said would happen.
“A lot of these companies — 99 Cents Only, Joann's, the Rite Aids of the world — oftentimes they select real estate that holds its value over time,” KWP Assistant Vice President Franc Magaña said.
The sites usually have the right parking setup and are well-located at an intersection or in a busy shopping area.
“The business model of the tenant going bankrupt does not speak to the quality of the real estate,” Magaña said.
There is also not a lot of brand-new supply coming online.
New retail development is coming online at a fraction of the rate it used to. In Q1, about 825K SF of retail was under construction, roughly 0.2% of existing retail inventory.
“There is such a small pipeline of new development coming online,” Magaña said.
Additionally, LA is seeing some retail space demolitions, with developers looking to replace retail with other uses such as housing or industrial space. These are reducing the overall retail supply by taking those spaces offline.
From 2021 to 2024, 4.5M SF of retail was demolished in LA, while just 3.6M SF of new space came online in the same period — a net loss of 900K SF, according to JLL.
The spaces that are getting demolished aren’t the Rite Aid and 99 Cents Only husks, brokers said, but more likely are spaces near a mall that are being razed for redevelopment with new uses.
“There are definitely some boxes, in West LA or some other areas, where the dirt is probably worth more than retenanting the building,” CBM1 principal Dave O'Connell said. “But for the big boxes I'm dealing with, we're retenanting all of them.”
CORRECTION, JUNE 3, 3:54 P.M. PT: A previous version of this story misspelled Franc Magaña's last name. The story has been updated.
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