Retail in WeHo Is Having a Moment

LOS ANGELES—The retail market in West Hollywood is truly having a moment. The market is experiencing all-time low vacancies and increasing rental rates, thanks—at least in part—to the development of mixed-use properties. Some reports have shown that retail in certain West Hollywood shopping destinations are among the highest in the country, making the real estate in the submarket extremely attractive for retail tenants. But, what is driving demand in this area? To find out, we sat down with Sharona Javaheri, an associate in the commercial properties group at Charles Dunn Co., who is a market expert. Here, she talks about the retailers in demand, where there are still challenges and where the market is headed.

GlobeSt.com: We're hearing a lot about low retail vacancies in West Hollywood. Can you give us a more in-depth look at what is happening in the market?

Sharona Javaheri: West Hollywood is experiencing a tremendous amount of activity that is spurred by several fronts. One factor is the literal 'rise' of so many mixed-use developments in the city. Retailers are eager to fill the lower floors of these developments because their client base often lives right above them. Higher density living means that retailers located within these neighborhoods benefit from direct interaction with a much wider audience than less densely populated areas. And historically, the city of West Hollywood is a culturally rich haven in the heart of Los Angeles. Businesses are clamoring to open in such a vibrant, dense community.

GlobeSt.com: Rate increases in West Hollywood are outpacing Beverly Hills. What is driving the high demand in this submarket particularly?

Javaheri: Rents in Beverly Hills are still some of the highest in greater Los Angeles, so you can't compare the two cities directly, in terms of dollar amount. However, rates in West Hollywood are increasing at a faster pace than rates in Beverly Hills. The reason behind this phenomenon is that West Hollywood has hit its sweet spot—its property values benefit from being surrounded by the high-end districts of Beverly Hills' Golden Triangle and the western end of Miracle Mile, while the city itself has become the most vibrant of the three due to the quality of its existing and incoming tenants and amenities.

GlobeSt.com: What are some of the challenges for tenants in the tight West Hollywood market, and how are retailers overcoming these challenges?

Javaheri: The greatest challenge for tenants in the tight West Hollywood market is the lack of parking spaces. Most of the residential areas are permit based, and vacant space on which to build lots is extremely limited. In addition, many of the tenants are foreign-born and are cautious to invest in larger commercial space that would give them a greater allotment of parking area. Tenants with extra capital are overcoming this challenge by budgeting not only for the rent of their storefront, but also for the rent of parking spots in nearby public or private lots.

Another challenge for tenants is the current lack of rent abatement and tenant improvement dollars provided by landlords. In years when it was a soft market, businesses could expect to negotiate these terms, but landlords are in a position to choose among competitive tenants who will demand little to no rent and improvement allowance.

GlobeSt.com: What types of retailers are in the highest demand from landlords?

Javaheri: There's not so much a particular retail channel on trend as there is a wealth of tenants in all businesses who are interested in creative space. Opportunistic landlords are building out their existing spaces with open floor plans, high ceilings, and exposed plumbing and fixtures; these spaces tend to make both the asking and effective rate jump. All sorts of tenants, from small web/tech firms to boutiques to neighborhood service and amenities-types, are interested in renting creative space.

GlobeSt.com: What is your outlook for this market over the next year? If things continue to tighten, where will retailers go?

Javaheri: Once the bulk of the new developments in the city are completed and leased out, I believe that demand will level off slightly, but will still remain high. I can't see the diversity of tenants and space requirements remaining in this market if rents go much higher. At this point, smaller store front spaces are most desirable – 600 to 800 square feet is the requirement in highest demand, with spaces up to 1,000 square feet remaining tight. The majority of tenants can't afford or don't want to lease larger spaces due to the rent moving up as a result of more space, and if they're priced out of these smaller spaces then they will almost certainly vacate and move further east or south, where the rent is significantly less. If this happens, vacancies would rise, and national tenants would be the primary occupiers left for these spaces.