Lifestyle Center Rental Rates Skyrocket

LOS ANGELES—Lifestyle center rents are on the rise. According to a retail report from NAI Capital, rents for the retail niche increased 6.3% in the first quarter. At the same time, vacancy rates actually increased 30 basis points to 4.1%. This increase, however, was likely the result of a new Ikea that was delivered to the market during the quarter. To find out more about the demand for lifestyle centers and the rising rental rates, we sat down with Fariba Kavian, EVP of Retail Services Group for NAI Capital.

GlobeSt.com: Why are lifestyle centers specifically seeing an increase in rental rates?

Fariba Kavian: Lifestyle centers are the newest phenomenon in retail. They are built in densely populated areas targeting an affluent demographic. The physical experience of a lifestyle center is not duplicated online by ecommerce since it includes entertainment as well as restaurants. Retailers are a beneficiary of the foot traffic generated as a result. As such they are seeing high sales per square foot, which is very attractive to retailers.

GlobeSt.com: What drove vacancy up slightly in the first quarter?

Kavian: Many retailers that were not doing well were holding off on store closures, trying to reap any holiday sales they could. Now, they have announced and commenced the closure of their retail locations. Additionally, some newly developed retail added to a slight uptick in vacancy.

GlobeSt.com: There is a lot of commentary about ecommerce affecting the retail market, but rental rates continue to increase. What is your take on this dichotomy?

Kavian: Successful retail has always been driven by population density, traffic, and household incomes. Although ecommerce is playing a great part, and a part that will continue to expand its role in retail, it will not replace all retail. The population in the city of Los Angeles grew by 42,000 people in 2016, bringing the population to 4,042,000 per the state Department of Finance.  Given that urban living is growing, retail in urban areas of Los Angeles will continue to thrive

GlobeSt.com: What is your retail forecast for the remainder of 2017?

Kavian: As always in times of flux my general market forecast is mixed. This is a time when depending on many policies, yet to be revealed, the market can turn either way. However, the urban Los Angeles retail market will continue to thrive as a result of the continued strong population growth it is experiencing. Given the limited amount of land in urban areas coupled with a strong anti-development sentiment, not a lot of new development can occur. Consequently, vacancy rates will stay low and this will continue to drive rental rates up. Naturally, the effect on real estate values in the city of Los Angeles will be a continued upward trajectory.   Any retail located in dense population centers will thrive. Locations in secondary markets will also benefit from some of the overflow from the primary markets. However, the tertiary markets will be caught up in a cycle of continued population reduction and plagued with retail vacancy.

LOS ANGELES—Lifestyle center rents are on the rise. According to a retail report from NAI Capital, rents for the retail niche increased 6.3% in the first quarter. At the same time, vacancy rates actually increased 30 basis points to 4.1%. This increase, however, was likely the result of a new Ikea that was delivered to the market during the quarter. To find out more about the demand for lifestyle centers and the rising rental rates, we sat down with Fariba Kavian, EVP of Retail Services Group for NAI Capital.

GlobeSt.com: Why are lifestyle centers specifically seeing an increase in rental rates?

Fariba Kavian: Lifestyle centers are the newest phenomenon in retail. They are built in densely populated areas targeting an affluent demographic. The physical experience of a lifestyle center is not duplicated online by ecommerce since it includes entertainment as well as restaurants. Retailers are a beneficiary of the foot traffic generated as a result. As such they are seeing high sales per square foot, which is very attractive to retailers.

GlobeSt.com: What drove vacancy up slightly in the first quarter?

Kavian: Many retailers that were not doing well were holding off on store closures, trying to reap any holiday sales they could. Now, they have announced and commenced the closure of their retail locations. Additionally, some newly developed retail added to a slight uptick in vacancy.

GlobeSt.com: There is a lot of commentary about ecommerce affecting the retail market, but rental rates continue to increase. What is your take on this dichotomy?

Kavian: Successful retail has always been driven by population density, traffic, and household incomes. Although ecommerce is playing a great part, and a part that will continue to expand its role in retail, it will not replace all retail. The population in the city of Los Angeles grew by 42,000 people in 2016, bringing the population to 4,042,000 per the state Department of Finance.  Given that urban living is growing, retail in urban areas of Los Angeles will continue to thrive

GlobeSt.com: What is your retail forecast for the remainder of 2017?

Kavian: As always in times of flux my general market forecast is mixed. This is a time when depending on many policies, yet to be revealed, the market can turn either way. However, the urban Los Angeles retail market will continue to thrive as a result of the continued strong population growth it is experiencing. Given the limited amount of land in urban areas coupled with a strong anti-development sentiment, not a lot of new development can occur. Consequently, vacancy rates will stay low and this will continue to drive rental rates up. Naturally, the effect on real estate values in the city of Los Angeles will be a continued upward trajectory.   Any retail located in dense population centers will thrive. Locations in secondary markets will also benefit from some of the overflow from the primary markets. However, the tertiary markets will be caught up in a cycle of continued population reduction and plagued with retail vacancy.