How Will L.A. Retail Perform This Year?

LOS ANGELES—While the final numbers are still rolling in, it is safe to say that the local Los Angeles retail market had a great year, for both street and daily needs retail. Looking ahead in 2017, experts are concerned about one wild card: the increasing minimum wage. This year, minimum wage will increase to $12 per hour for large businesses and $10.50 per hour for small businesses with fewer than 26 employees. Ed Sachse, executive managing director of Kennedy Wilson Brokerage, says that this could have an impact on retail absorption rates this year.

“The absorption was good in 2016 for Los Angeles street retail. I expect 2017 to be very similar to 2016, but I do expect to see more absorption but at  a slower pace,” Sachse tells GlobeSt.com. “That is because the cost of labor is going to go up in 2017 with the increase in minimum wage. We may see an adjustment in pace, especially for restaurants and food establishments, as a result. The cost of goods and services should go up, and that may slow down consumption a little bit. That may really have an effect on the local economy in 2017.”

While some believe the increase in minimum wage will increase the disposable income, and therefore fuel consumer spending, Sachse doesn't agree. “On a macro basis, that makes sense,” he says. “On the everyday basis, I am not sure that we will see that effect because the typical minimum wage earner may not have much disposable income to move the needle. They are paying more for necessities than disposable income.”

One trend that he expects to stay strong this year is the affinity for daily needs retail, which has been a focus for most retail investors. In 2017, competition for these assets will remain high. “Daily needs is critical in the retail environment,” explains Sachse. “It is a returning customer to a specific property or a specific area, and in general, people are shopping for the now rather than for the future. Daily needs are really a driver for synergistic retail.”

LOS ANGELES—While the final numbers are still rolling in, it is safe to say that the local Los Angeles retail market had a great year, for both street and daily needs retail. Looking ahead in 2017, experts are concerned about one wild card: the increasing minimum wage. This year, minimum wage will increase to $12 per hour for large businesses and $10.50 per hour for small businesses with fewer than 26 employees. Ed Sachse, executive managing director of Kennedy Wilson Brokerage, says that this could have an impact on retail absorption rates this year.

“The absorption was good in 2016 for Los Angeles street retail. I expect 2017 to be very similar to 2016, but I do expect to see more absorption but at  a slower pace,” Sachse tells GlobeSt.com. “That is because the cost of labor is going to go up in 2017 with the increase in minimum wage. We may see an adjustment in pace, especially for restaurants and food establishments, as a result. The cost of goods and services should go up, and that may slow down consumption a little bit. That may really have an effect on the local economy in 2017.”

While some believe the increase in minimum wage will increase the disposable income, and therefore fuel consumer spending, Sachse doesn't agree. “On a macro basis, that makes sense,” he says. “On the everyday basis, I am not sure that we will see that effect because the typical minimum wage earner may not have much disposable income to move the needle. They are paying more for necessities than disposable income.”

One trend that he expects to stay strong this year is the affinity for daily needs retail, which has been a focus for most retail investors. In 2017, competition for these assets will remain high. “Daily needs is critical in the retail environment,” explains Sachse. “It is a returning customer to a specific property or a specific area, and in general, people are shopping for the now rather than for the future. Daily needs are really a driver for synergistic retail.”