Pent-Up Demand for Retail Real Estate Could Fuel Development, Drive Rent Prices Up

There are signs of economic recovery in Southern California as “pent-up demand” drives retail real estate development in the region, according to the Second Quarter Market Overview by Marcus & Millichap.

“The confluence of strong job growth and elevated retail sales will support improving retail operations through year-end,” according to the report. “Developers have responded to heightened demand by moving several projects into the pipeline. However, pre-leasing commitments are above 80 percent, indicative of pent-up demand from retailers seeking premium space. Secondary space, meanwhile, is also attracting local retailers attempting to gain a foothold.”

Most of the available properties will need renovations and changes to the tenant rosters, according to the report, which predicts asking rents in the region to rise 4.2 percent this year “as retailer demand pares vacancy at dark, in-line space.” Long Beach and East Los Angeles have more than 1 million square feet of development planned, according to the report.

In downtown Los Angeles, there are more than 400,000 square feet of development underway, much of it residential properties that could drive demand for retail services in the area. According to the Marcus & Millichap report, “investors are confident that a gentrifying downtown is creating opportunities to capture retail sales from the occupants of the high-cost apartments under construction.”

Across Southern California, several high-profile retail projects are in development, including the 220,000-square-foot Runway Playa Vista within the mixed-use Playa Vista development. The project is 70 percent leased, according to Marcus & Millichap. In Culver City, another retail project, The Platform, is also in the works, as is The Point retail development in El Segundo. In the San Fernando Valley, The Village of Westfield Topanga project will add 535,000 square feet of retail space when it is completed later this year. Space is 100 percent leased, according to Marcus & Millichap.