Retail Absorption Spikes in SoCal, Thanks to the Inland Empire
With 1.5 million square feet in net absorption, seven-times the square footage was taken off the market compared to the previous quarter.
Retail absorption is surging in Southern California. There was 1.5 million square feet of net absorption in region in the second quarter, resulting in seven-times the square footage of retail space taken off of the market over the previous quarter, according to a second quarter report from Colliers. The activity shows a swift rebound in the retail sector as businesses reopen.
The Inland Empire was largely responsible for the spike in activity. The market recorded 1.8 million square feet in positive net absorption, a sudden improvement after five straight quarters of negative net absorption. As a result, the vacancy rate in the market fell from 9.7% in the first quarter to 9% in the second quarter. However, rental rates have not followed the same growth trajectory. Asking rents are down $.30 for the quarter to $1.56 per square foot.
The Orange County retail market was stable in the second quarter with 123,000 square feet of positive net absorption and a flat vacancy rate of 4.8%, compared to 4.9% in the first quarter. Regional malls surprisingly have the lowest vacancy rate in the submarket at 2.4%, while single tenant buildings make up 40% of the total available retail inventory.
Los Angeles’ retail sector continues to struggle. The county posted negative net absorption for the eighth consecutive quarter, with nearly 364,000 square feet of negative absorption. The vacancy rate fell 20 basis points to 6.3%, up from 6.1% in the first quarter. Vacancy and lifestyle centers are the pressure point, with a 10% vacancy in the market. Adding more downward pressure on market metrics, there is an active retail construction pipeline of nearly 773,000 square feet, and 177,000 square feet was added to the market in the second quarter. Rental rates are falling as a result, down $.13 quarter-over-quarter to $2.88 per square foot. Despite these struggles, Los Angeles continues to have the highest asking rents in the region.
The Los Angeles retail story has been bleak. A first quarter report from Colliers predicted that retail rents would fall 3% this year as retail rent growth slumped 0.5% at year’s end, marking the first time the US retail market has seen negative rent growth since 2011. The firm predicts retail rents will fall 3% this year and should return to pre-pandemic levels in 2022, noting that rent collections continue to tick up and signal stabilization may be on the horizon.