With Downtown Office Workers Still Remote, Retailers Surviving But Not Thriving

Workers in Downtown Los Angeles have yet to return to the office, and nearby retailers are feeling the impact.

Downtown workers are largely responsible for driving the daytime population in the area to between 400,000 and 500,000 in normal times, according to the Downtown Center Business Improvement District, and the absence of those workers has stripped area retailers of a steady source of business throughout the coronavirus pandemic.

“While retailers and restaurants have been able to survive, it will make a world of difference when the office workers are back in force,” Downtown Center BID Executive Director Nick Griffin told Bisnow.

About 33.1% of workers in the greater LA region returned to the office in the week ending Oct. 13, according to estimates by Kastle Systems, which creates touchless entry systems.

Foot traffic in Downtown neighborhoods was down 40% to 60% in September 2021 compared to September 2019, according to data from Advan, which uses anonymized cellphone information to measure movement throughout the area.

The greater Downtown region had a retail vacancy rate of 5.6% in the third quarter, according to CBRE, which is up from 4.4% in the second quarter.

The actual vacancy rate is much higher, as the CBRE data focuses on shopping centers, like the Bloc or FigAt7th in the Financial District, which have fared better than independent or stand-alone retailers in the pandemic.

Brookfield’s Figat7th shopping center on Figueroa near 7th Street never fully closed, with its anchor tenant, Target, among those deemed essential. Though Brookfield did not share foot traffic numbers, Director of Mixed-Use and Retail Rachel Zanetos told Bisnow the figures continue to climb each month.

The vacancy rate for downtown retailers not in shopping centers is in the double digits, according to CBRE Senior Vice President Derrick Moore. This includes retailers in mixed-use office properties, perhaps even more so, with retail and office seen as two of the hardest-hit product types during the pandemic.

Lower occupancy levels suggest the majority of Downtown companies are allowing workers to work largely or entirely from home, Moore said, “and [that] it is why we are seeing more vacancies, certainly more than I've seen in 20 years, in Downtown.”

It’s not all doom and gloom, as Moore is noticing a rebound in some pockets of the area.  

He pointed to the Arts District and Little Tokyo as examples of recovering neighborhoods, with walkability and smaller-scale streets that give off a more welcoming vibe.

And some new businesses have been brave enough to open in the midst of uncertainty. The Downtown Center BID has tracked 65 new businesses that opened in its coverage area since the start of the pandemic, Griffin said.

A growing Downtown population helped to offset some of the retail losses caused by the shortage of workers, Moore said. Downtown’s population grew from around 45,000 residents in 2011 to approximately 76,000 residents in 2017. The DC BID estimates there are more than 80,000 residents in Downtown now, and city planners are anticipating more growth in the area over the next two decades. 

Those residents have helped drive business to Downtown retailers, Griffin said.

“If it weren’t for those residents, retailers and restaurants would have had a much harder time,” Griffin said.

DC BID data showed that all aspects of the Downtown real estate market slowed at the onset of the pandemic, but multifamily is now experiencing a rebound. A July 2021 CBRE report, which used the brokerage’s own data and data from CoStar, found that vacancy at Downtown apartment buildings dropped to 9.4% in Q2 2021 from 13.1% the prior year.

These residents will continue to be important for retailers as work-from-home trends continue, South Park BID Executive Director Ellen Riotto said in an online panel put on by the Central City Association.

Businesses that embrace a hybrid model will have their employees working from home some days a week. In a neighborhood like South Park, which has 15,000 residents, those remote workers act as a new workforce for that neighborhood in Downtown, Riotto said. 

South Park is a different landscape than the Financial District or other parts of Downtown that rely heavily on worker foot traffic, area business owners who spoke to Bisnow said. HiDef Brewery founder Cristina Ward said that with several large, newer apartment complexes on the blocks surrounding the brewery — Aven, Wren, Olive DTLA, to name a few — she had anticipated that the bulk of her customers would be residents of those buildings. 

She was right, but she said it will take more customers overall for her business to be profitable. 

Ward and her team, including husband Trevor Ward and brewer Lars Lesterud, rented the space at 12th and Olive streets in 2018, but it took more than two years to get all the permits needed to open. They opened HiDef Brewing in October 2020 in the midst of the pandemic, and have faced challenges as a result of the timing.

Ward is optimistic about foot traffic brought in by the Staples Center, which reopened in April and has begun to host events again, and by the Los Angeles Convention Center. Both venues are about a half-mile away from her brewery. 

Like other area business owners, Ward is having to make up for lost time — and rent — and drive in new customers.

“I haven’t closed, but I’m not doing well. I’m surviving, but I’m not doing well,” Ward said.