The Los Angeles retail market has a lot of strengths. Asking rents are up, overall, to $33.34 per square foot, according to a new report from JLL. However, while rents continue to rise, a sign of demand, the vacancy rate has grown from 2018 to 46% and net absorption last year was negative 1.2 million square feet. The vacancy rate is climbing even as new construction activity slows, down year-over-year, according to the report.

"America has too much retail square footage and not all of it is good," Benjie Baker, VP at JLL, tells GlobeSt.com. "That's a given. Furthermore, with the amount of data available, owners and retailers have a much more accurate read on the true value of a space. That is causing tremendous bifurcation in the market between commodity retailers and experiential retailers, including entertainment concepts. This makes good real estate even more valuable and poor real estate less."

The market seems to becoming more bifurcated. While obsolete retail is left vacant, driving down occupancy rates, in-demand retail is seeing significant rent increases, enough to boost overall rental rates. "To complicate things further, as rents for good real estate escalate, tenants reduce their footprints in order to minimize costs and streamline operations," says Baker. "The wheat is rapidly getting separated from the chaff as the industry forcibly evolves."

As retailers catch on and evolve to new trends—and find ways to compete with online shopping—leasing activity is picking up. In fact, the year is already showing promise compared to 2019. "It certainly feels like activity has increased compared to 2019. Macrotrends continue to be relatively positive and that is reflected in retailer confidence," says Baker. "As mentioned previously, retailers are getting better and better at understanding their businesses. The more they identify what works for them, the more retailers can be confident and active."

Still Baker warns not to get too excited about retail activity this year, saying, "2020 still has a sense of cautious optimism because technology forces aggressive pivots with barely a moment's notice."