LOS ANGELES—The retail market staggered in the first quarter of the year, with vacancy rates climbing by 20 basis points to 4.7% and negative absorption rates, according to the first quarter reports from Colliers International. It isn't uncommon for retail to slow in the first quarter after the holiday rush, but with 1 million square feet of retail product under construction, market experts wonder if the new supply will be absorbed.

“In a macro sense we have too much retail period.; however, in underserved sub-markets, retail is necessary to serve the increasing population due to the construction of multifamily and condo high rises,” Christopher E. Maling, EVP of retail investments at Colliers International, tells GlobeSt.com. “It is site specific and market demand for certain locations will drive rental rates.”

This year, the market seems to be following as similar pattern to years past, with a slow start that picks up through the year. “Retail sales were down because of heavy spending in the later part of 2016. The after Christmas and New Year sales are offered before Christmas and before the end of the new year,” says Maling. “We will see the same this year barring any “Global events” that will shock the system. North Korea, transfer of leadership in Europe, like France and Turkey, and Brexit.”

Despite the slow down in sales and leasing activity, Maling expects the Los Angeles market to perform similar to 2016, and the firm is already seeing a lot of this activity. “Our transaction activity levels in terms of velocity and values are at a very strong pace,” he explains. “There is a lot of uncertainty that is causing principals to take action. There is some turbulence ahead about disbanding the IRC 1031 Tax Deferred Exchange for real estate owners. That will be devastating to owners with a huge capital gains tax due to a low basis to sell their properties.”

The largest Los Angeles project currently under construction is The Vineyards in Porter Ranch, a 214,000-square-foot project that is expected to deliver in 2018.

Instant Insights /

Will L.A. Absorb the 1MSF of New Retail Projects?

Related Stories

Recommended For You