Chris Cooper is a managing director at Avison Young.

It is no secret that retail has undergone a dramatic evolution this cycle. As the market moves toward experience- and destination-drive retail centers, assets will continue to be repurposed into either higher-end retail or into a higher and better use. In many instances, that will mean retail, particularly big box spaces—will be converted into industrial distribution centers.

“There is going to be a repurposing of retail, whether that is converting big box retail into fulfillment centers or developing or redevelopment new retail into destination types of centers,” Chris Cooper, principal and managing director at Avison Young, tells GlobeSt.com. “For instance, the Grove is a destination with great restaurants, shopping and outdoor water features. Retail also is strong in Downtown L.A. because it is lifestyle retail and mixed-use projects, which are still very popular.”

This bifurcated trend in retail repurposing has created unusual market metrics. According to a recent report from Avison Young, shows that the retail vacancy rate in Los Angeles hit 4%, and rental rates increased 6.5% in 2018. However, lease rates have dragged, with leasing activity only a third of what it was in 2017, and leasing activity is expected to remain muted. “People have gotten wise and they have repurposed retail. In those projects, you have seen absorption and strong rental rate increases. Retail is moving from vanilla, middle-of-the-road retail,” says Cooper. “That is driving up rates and reducing vacancy. Retail can be very expensive and it is a massive undertaking. Some types of projects are growing, especially destination and experiential retail, and there is rental increases. However, developers, tenants and investors are being very cautious.”