Berluti

LOS ANGELES Retail real estate in Los Angeles continues to plug along, although it’s doing so in a new climate for dealmaking.

That new normal is expected to continue to be marked by shorter lease terms, interest in downsizing by some brands and exploration of retail from first-timers, mostly in the direct-to-consumer space. That’s all bearing out in a market flooded with interest for smaller spaces.

“It’s picking up. I don’t think that it is doing gangbusters and I think it stays the status quo and it hums along. People remain interested,” said Devin Klein, a retail broker at JLL. “You’ve got a lot of the new companies that have been developing their spaces for a while now that are going to be opening up in 2019.”

There are few surprises when it comes to what submarkets are leading the way. The usual names are likely to continue to lead the market in the first half of the year: Brighton Way in Beverly Hills, Rodeo Drive, Melrose Place, the portion of the 3rd Street Promenade bordering Wilshire Boulevard in Santa Monica, new development all along Wilshire expected to come online in 2019, Silver Lake and Culver City, Klein said.

“You’ve got Beverly Hills still continuing to lead, along with Melrose Place. As much as there’s more vacancy right now than there was earlier in the year, what’s happening is tenants are looking to reduce the size of their footprint,” Klein said. “So they’re still coming and there’s a lot of good signs that they’re coming. Just within the last couple of weeks, we’ve had an influx of luxury tenants coming back to us and are now saying, ‘I’m ready.’”

Outside of luxury, it’s food, fitness and direct-to-consumer brands that are allowing retail to continue to plug along.

“Apparel’s not the hottest category. It’s not as hot as food and beverage, entertainment and health care, but there are fashion categories that are still active,” said Jeff Moore, a senior managing director at CBRE. “You’re seeing clicks-to-bricks retail that’s going on. These are start-up, lesser-known brands that typically might have shorter lease terms or they’re wanting to go into a hip area to try and grow their brand. They don’t have a lot of stores and start off with a small number of locations.”

These are brands that typically are looking for areas that attract a younger customer base more technology focused with similar cotenancies of trendsetters, Moore added.

“Uses that remain very much in demand and sought after are food and beverage, experiential kinds of entertainment concepts, beauty and fitness,” Klein said. “There’s just a tremendous amount of deals that are being done in those sectors. Members-only clubs are also finally making their way into Los Angeles, between Spring Place in Beverly Hills, and Soho House continues to flourish and will be opening up in downtown in the Arts District.”

Areas that may be a bit more challenged in the near term include Malibu, due to the effects of the recent fires, and Hollywood, Klein said. On the latter, the broker went on to say, it’s a matter of allowing the market more time to continue to develop. With so many more options elsewhere to rent, Hollywood is typically not the first choice for most tenants looking for space in the greater Los Angeles area.

Ultimately, brokers see the glass half full for the first half of the year.

“There’s a lot going on in the world with politics and everything else and there’s rumors about some kind of a correction, whether that’s in ’19 or ’20. But with the markets overall, we’re hearing a lot of optimism,” Klein said.

Put another way, Moore added, “I think 2019’s going to be good. Consumers have been demanding same-day or next-day deliveries and that’s been impacting retailers, especially in the fashion industry, for the last number of years. But they’re starting to get on the same page. They’re creating click-and-bricks and omnichannel solutions that are meeting those customer demands and it’s starting to pay off. I think it’s going to continue to pay off for those who get it.”