In-Store E-Commerce Fulfillment Helps Retail Availability Begin Creeping Back Down

Though the rise of e-commerce is often framed as a major detriment to retail real estate, retail has shown its resiliency with a decrease in available Southern California space in the third quarter, according to a trend report from NAI Capital.

Available retail space in Q3 2021 declined throughout the Inland Empire and Ventura, Orange and Los Angeles counties when compared to what was available in those areas in Q3 2020. 

Orange County’s available square footage declined 8% year-over-year, with a Q3 2021 availability rate of 5.1%. LA County saw the smallest decline in available square footage for retail, with space availability decreasing 2.2% from Q3 2020 to Q3 2021. The availability rate in LA County was 6.5% for Q3 2021, according to NAI Capital. 

The decline in available space shows that retailers are holding on the best they can, trying to reconfigure their space to meet the current needs of customers, whether that means adding outdoor dining or in-store pickup, said NAI Capital Managing Director of Research J.C. Casillas, who is also the report's author.

"If retailers were throwing in the towel, there wouldn't be a decline in available space," Casillas said.  

The fundamentals outlined in the report indicate health in the retail market. Average asking rents held relatively steady, increasing slightly, and deal volume increased as well. 

Average asking rents for triple-net-leased retail properties in LA County saw a 4.5% increase from Q3 2020 to Q3 2021, when they were at $3.02 per SF. In Orange County, average rents reached $2.35 per SF, a 2.6% increase from the same time the year before. Casillas did note that these are average asking rents and that taking rents might look different.

Retail property sales volume saw triple-digit growth, increasing 33.8% year-to-date to more than $3.4B in the region in Q3 2021 compared to the same period in 2020.