WESTERN SNAPSHOT, MAY 2004

Los Angeles Retail Market

Retail properties remain the investment of choice in the Los Angeles market. Taking advantage of the interest, Southern California developers plan to incorporate retail into buildings tagged for residential use and to develop other mixed-use projects as well as long-awaited shopping centers. Meanwhile, investment demand for single-tenant properties continues to flourish.

Los Angeles Mayor Jim Hahn has decided to extend beyond the downtown submarket the 1999 ordinance easing the process of converting commercial buildings into residential properties. The measure has proven successful downtown where more than 6,500 residential units have been built or are in the planning process. While the enactment was intended for residential uses only, builders are finding that projects are more successful when retail is incorporated into the plan. An example is the former Getty Oil Company office tower, which is being converted to apartments with 30,000 square feet of ground-floor, high-end retail.

The limited amount of land has forced builders to become more creative with many constructing mixed-use projects. The Pike at Rainbow Harbor in Long Beach has both large housing and significant retail components. The 18-acre waterfront property, being developed by Developers Diversified Realty, will feature approximately 370,000 square feet of waterfront restaurants and entertainment venues, including a Crown Theater and GameWorks.

In North Hollywood, J.H. Snyder is building a massive mixed-use redevelopment project called NoHo Commons. The $130 million project will combine more than 700 residential units with 70,000 square feet of retail space.

In the heart of L.A.’s Fashion District, MJW Investments’ is constructing Santee Court, the largest adaptive reuse development in the city. Santee Court will feature 110,000 square feet of retail space, a 400-square-foot retail promenade and 578 lofts and condos.

Through a joint effort of the city and county of Los Angeles, the revitalization of Grand Avenue is set to begin. Located adjacent to the new Walt Disney Concert Hall, the four parcels of land have been entitled for up to 3.2 million square feet of residential and commercial development.

Southern California retail owners can look for declines in vacancy across the board, with the improving economy and continually changing retail climate producing enough new tenants to keep absorption positive in 2004. Los Angeles is looking at a 20-basis-point decrease in vacancy and a 4.5 percent increase in lease rates.

Investors have been vigorously pursuing local retail properties during the last year, with single-tenant properties garnering the most interest. The median price for single-tenant properties in Los Angeles increased by 11 percent in 2003, to $210 per square foot. In the South Bay/Long Beach area it rose 25 percent, to $125 per square foot. Properties in top-end locations occupied by credit tenants have the ability to garner even higher prices.

Lane Schwartz is the regional manager of Marcus & Millichap’s Los Angeles office.


©2004 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.