Respite From Effects of COVID-19 Storm
Greater Los Angeles Retail Market
The pace of retail space givebacks has mostly abated this quarter as only 196,700 square feet was returned to the market vacant. The vacancy rate remains unchanged at 5.8%, although there is a growing amount of space that is being marketed for lease or sublease.
Asking rents have declined by $0.05 per square foot (PSF) triple-net (NNN) over the quarter, with the largest declines seen in strip centers and single-tenant buildings. These tend to be mom-and-pop landlords who are more responsive to changing market forces due to less secure financing options. Asking rents remain higher for Super Regional and Regional Malls. These property owners tend to attract larger credit tenants who have been more nimble in responding to COVID-19 consumer changes.
California Governor Gavin Newsom has extended a commercial eviction moratorium through March 2021. This emergency legislation seeks to protect small businesses by barring property owners and landlords from evicting tenants due to the hardships stemming from the COVID-19-induced shutdowns.
In reality, this legislation masks a growing wave of tenant defaults and kicks the can of growing vacancies and tenant evictions down the road to 2021. As many as 25,000 stores could close in the United States this year. This is much higher than the previous record of 9,800 store closures set in 2019.
Structural headwinds for the retail sector are exacerbated by the ongoing COVID-19 crisis. Competition from e-commerce sales, evolving consumer tastes, changing demographics and decreased consumer spending have led to increased competition and consolidation among remaining retailers.