Retail Vacancy to Peak During Latter Half of 2010

High unemployment in Los Angeles County and the return of approximately 420,000 square feet of retail space to the market will cause retail vacancy in Los Angeles to hit its peak in the second half of 2010 before finally improving in 2011, according to a recent report from real estate company Marcus & Millichap.

Retail vacancy hit a 16-year high in the first quarter of 2010, driven mainly by space vacated in shopping centers and specialty retailers, which, Marcus & Millichap estimates, accounts for approximately 70 percent of all recently vacated space. CB Richard Ellis, the Los Angeles–based commercial real estate broker, released a report for the first quarter of 2010 that said the market could be in for more erosion because of an increase in retail-store liquidation. According to CB Richard Ellis, during the first three months of the year, the Greater Los Angeles retail market saw its overall vacancy rate increase for the 12th straight quarter to 5.3 percent. The biggest increase in retail vacancy was seen in the mid-Wilshire area, which had a rise from an overall vacancy rate of 0.8 percent in the first quarter of 2009 to 2.1 percent at the end of the first quarter of 2010—representing a 166 percent annual increase.

The news isn’t all bad, however. Marcus & Millichap predicts that sales activity will strengthen in 2010 as “an array of investors look to increase their holdings in one of the nation’s premier retail markets,” according to the report. “Deal flow has picked up as investors, convinced the local economy is nearing bottom, expand portfolios ahead of a recovery.” The real estate company also expects asking rents to continue to drop, with a decrease of 2.1 percent in 2010 to $27.64 per square foot. In 2009, asking rents fell by 5.4 percent.

Employment, too, is showing signs of life. The professional and business-services segment cut 23,400 jobs last year—but hired nearly 5,000 individuals within the past six months. The leisure and hospitality sector grew by 2,400 in the first quarter after having slashed 11,000 jobs in the previous three quarters. In all, employers are expected to add 29,400 positions for an increase of 0.8 percent in 2010.

(Link to Market Statistics Chart)