Latest Commercial Real Estate Market News & Investment Advice in Los Angeles

Vacancies Hit All-Time High

August, 2018
by Karl Niehaus, President, CREI

Commercial Overview:

RETAIL VACANCIES HIT ALL-TIME HIGH, there is more vacant retail space than ever, but don't panic, it's contained to a relatively small number of chains. Retailers plan to close a record 111 million SF across the country this year. That exceeds last year's record of 105 million SF. While the overall retail vacancy rate of 4.6% has been consistent for several quarters and points to a stable retail environment, just five retailers are accounting for 55% of total vacated space. Bon-Ton, Sports Authority and Toys "R" Us filed for Chapter 11 bankruptcy protection. Sears Holdings Group said it would close 78 Sears and K-Mart stores next month, and J.C. Penney shut 138 stores last year; these 5 retailers account for over half of all vacancies. Retail and tech research firm, Coresight Research, predicts 1,200 department stores will close in the U.S. by 2023. The top-performing sector in retail has been the neighborhood center, where food, drugs and personal services are sold.

Economic Overview:

CHANGING CAPITAL GAINS and the effect to the economy and investors is being debated. President Trump has directed Treasury Secretary Mnuchin to explore adjusting the way capital gains taxes are calculated for inflation, potentially shedding at least $100B in tax revenue over the next 10 years. Critics worry the change in code could give wealthy individuals unfair advantages, while some in the real estate industry feel it would increase investment in commercial real estate. By removing some of the capital gains challenges, it could allow investors sell, as opposed to investors being forced to continue holding for tax reasons or potentially buying properties they don't want just to circumvent capital gains taxes. Nothing has been decided yet, but it could have a significant impact on both the economy and commercial real estate.

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