2008 Retrospective: Retail, Industrial Rents Down, Vacancies Up in California
Record-low consumer confidence, coupled with a cloud of bad debt hanging over the country, has hit retailers harshly, resulting in rising vacancy rates and lower rents even in the toniest of neighborhoods.
Shopping centers have been affected by the largest wave of store closures in seven years while boutiques face less demand, forcing some landlords to ease up on rent increases. Even on Rodeo Drive in Beverly Hills, where occupancy rates are at nearly 100 percent, rents have dropped about $5 over the past year to $40 per square foot (plus triple net), according to Philip Klaparda, senior associate for real estate company Dembo & Associates in Beverly Hills. Rents on Los Angeles’ fashionable Robertson Boulevard have also dropped to the $15 to $25 range from $20 to $25 a year ago. American Apparel will be the street’s newest tenant, with a store opening at 315 S. Robertson during the first quarter.
On other boutique streets in Los Angeles, such as West Third, rents have fallen about a dollar to $4 per square foot and the same on central Melrose to about $8 per square foot.
Examples of current vacancies include a 900-square-foot retail space next to KidRobot in the 7900 block of Melrose. Sachse Real Estate is handling the listing, which has an asking rate of $8.75 per square foot. A 1,300-square-foot space on the 1600 block of Montana Avenue in Santa Monica, Calif., is going for $7 per square foot. Space at The Plant, a neighborhood commercial center in Van Nuys in the San Fernando Valley, is going for $3.95 per square foot for spaces from 1,100 to 5,000 square feet, according to Sachse.
“There’s been a slowdown in the economy and a slowdown in demand,” Klaparda said. “Not many tenants were looking during the first and second quarters, and that created more supply than demand. I do think that companies that are looking for long-term opportunities should take advantage and lock in these discounted rents and position themselves for the future.”
In Los Angeles County, retail rent growth in neighborhood and community shopping centers for 2008 slowed to a projected 1.3 percent from 5.6 percent last year. And vacancies increased by 1.5 percent to 4.3 percent, according to real estate researcher REIS. The average annual rents were projected to end the year at $29.96 per square foot. The measurements were taken from stores located in strip and power centers, which are either anchored by a grocery chain or a big-box store such as Wal-Mart.Industrial outlook
Manufacturing and warehouse space in Southern California retracted in 2008 as businesses consolidated their locations, cut back staff or closed operations altogether. Long-term decisions were being put on hold, and that reflected in sales and leasing activity, according to CB Richard Ellis real estate.
Vacancy rates for the third quarter hit 4.3 percent, compared with 2.9 percent in the third quarter of 2007. Rents ended the quarter at 67 cents per square foot, compared with 71 cents a year ago. Absorption stood at negative 1 million square feet, compared with 4.8 million square feet last year.
In the Northern California market, namely the San Francisco peninsula, industrial vacancies climbed to 6.7 percent from 3 percent over the past year. Rents remained fairly flat for a fourth straight quarter. Manufacturing-space rents ended the quarter at $1.12 per square foot, down 5 cents, while warehouse space was down 2 cents to 91 cents, and R&D space was unchanged at $2.64. Absorption was in the negative by 160,000 square feet, compared with 210,000 square feet in the positive last year. —Robert McAllister
