For 2026, in the Los Angeles retail sector, continuing competition for necessity-based assets is anticipated as capital allocations increase from seasoned and new investors attracted to the sector’s strong leasing and stable growth fundamentals, according to Northmarq.
Additional anticipated rate cuts will lower borrowing costs as liquidity improves, supporting a continued upward trajectory in acquisitions and potential for new development activity, which has been noticeably lacking.
“Investor excitement continues to grow for smaller, curated footprints in Los Angeles that blend dining, shopping, and entertainment as new concepts emerge and elevated placemaking efforts are rewarded with higher-quality tenancy,” Tim Kuruzar, senior vice president of investment sales at Northmarq, told GlobeSt.com.
“While we expect capital to be cautious, the fundamentals are too strong to ignore. In summary, 2026 is shaping up to be a year of selective, but meaningful opportunity.”
Rents Have Partially ‘Maxed Out’
Brad Umansky, CCIM, president and head coach of Progressive Real Estate Partners, told GlobeSt.com that he sees the California retail market in transition.
“Vacancy rates are increasing, and although much of this increase is due to mid- to big-box closures such as Big Lots and Rite Aid, we are also seeing some softness in shop space,” Umansky said.
“It appears that rents may have partially maxed out due to the significant increase in triple-net charges that many properties have experienced over the past couple of years.”
Insurance, refuse and labor-intensive vendors have caused triple-net charges to increase faster than base rents, putting downward pressure on the latter, according to Umansky.
“New construction is expected to remain virtually non-existent,” he said. “Construction costs, market uncertainty, and the inability of most users to pay the rents required by new construction are driving the industry to focus on repurposing 2nd-generation space.”
Demand for amenity-rich, experience-oriented places that offer more than just traditional retail is on the horizon, according to Eric Johnson, senior project executive at West Harbor.
He told GlobeSt.com that waterfront destinations like West Harbor are emerging as next-generation mixed-use anchors because they combine open-air environments, dining, culture and recreation in ways that reflect how Californians want to live, work and play.
Specialty and Off-Price Retailers Get Their Due
Moreover, Vicky Hammond, managing principal of Coreland Companies, expects the popularity of specialty grocers and off-price retailers to continue to drive the Southern California market in 2026.
She told GlobeSt.com that each category successfully weathered the fluctuations of 2025, showcasing that customers will choose to save in other areas because they see the value in these experiences.
“Convenience remains the main driver shaping customer behavior, and thus site selection for most retailers,” according to Hammond.
“This year, we saw double-digit rent increases for key outparcel locations and significant tenant investment in renovations of coffee houses and Pilates studios, as examples – all because today’s customers prioritize access, immediacy, and experience.”
In San Francisco, “nearly sold out” signs could metaphorically be posted on four of its popular neighborhood commercial districts, while the downtown/Financial District/Union Square areas are entering a return of national/international investors and retailers, according to a new report from Maven Commercial.
Authenticity is Key to Retail Experience
As for AI, its integration remains a topic of active discussion in retail.
“We are eager to see the results of Walmart and Target’s AI holiday shopping tools,” Hammond said. “However, we believe that authenticity is key to the retail experience, and local tenants will thrive because they connect with customers.
“There is no better example of this than specialty retailer Trader Joe’s, which continues its steady SoCal expansion with four or five additional locations opening in 2026.”
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