While national headlines focus on store closures and struggling retailers, Southern California’s retail real estate market tells a different story. Vacancy rates have reached historic lows, and landlords are commanding higher rents and stricter lease terms. The region’s leasing environment now strongly favors property owners, a sharp departure from challenges seen elsewhere in the country.
Stephanie Skrbin, a broker at Axiom Retail Advisors with more than 20 years of experience in tenant and landlord representation, offers a front-line perspective that contradicts the narrative of retail decline.
Despite widespread reports of retail’s decline, Skrbin maintains that demand in Southern California never truly disappeared. She points to the region’s enduring appeal: “People are leaving California, but there are also folks coming in and taking advantage of the opportunity to move here. You can’t beat the lifestyle and proximity to beaches, mountains, desert, parks, and entertainment.”
Recent industry data support her view. For the first time since 2021, store openings in the U.S. are expected to outnumber closures. In Southern California, limited supply of quality retail space and selective tenant expansion have driven competition to levels not seen in years.
Rising land prices and high construction costs have made ground-up retail development rare. Existing shopping center owners are now focused on maximizing value from their current portfolios. With little new supply coming online, tenants seeking space have few options, pushing vacancy rates lower and strengthening landlords’ positions.
The current market has shifted negotiating leverage firmly to property owners. Skrbin observes that landlords are holding firm on rents and demanding more favorable terms across the board.
“Landlords have the advantage right now because of the tight market,” she says. “They want flexibility. Many landlords I’m working with are not offering caps on controllable CAMs, and when they do, the caps are higher. Three percent annual increases used to be standard. Now I’m seeing 3.5%, 4%, and even 5% annual increases.”
Beyond higher rents, landlords are reducing tenant-friendly provisions such as multiple option periods or generous co-tenancy clauses. They are also more selective about who they lease to and are seeking greater protection from tenant closures. Lease structures are becoming more complex, reflecting property owners’ ability to dictate terms in a market defined by scarce supply.
Not all retailers are expanding equally. Fitness operators are among the most active tenants. Skrbin recently completed a deal for a 34,000-square-foot, two-level space in West Los Angeles that proved difficult for traditional retailers but was ideal for a fitness user entering the market. Fitness concepts are drawn to the flexibility of adapting non-traditional spaces, allowing them to expand even when standard retail footprints are unavailable.
Other expanding categories include grocery stores, discount retailers such as Five Below and Dollar Tree, medical practices, and restaurant concepts. Skrbin notes, “Savers is rapidly expanding. Fitness users are expanding. Some grocers are expanding. FedEx Office is back in the market. Pacific Dental is pretty active right now.”
Expansion, however, has become more targeted. Retailers are focusing on their strongest, most productive locations and avoiding marginal sites. In a high-rent environment, the ability to generate sufficient sales to cover overhead is critical. Many brands are passing on locations that would have been considered acceptable in previous cycles.
One emerging challenge is the mismatch between available space sizes and tenant needs, particularly for quick-serve and fast-casual restaurants. Many operators who once preferred spaces of 1,800 to 2,400 square feet are now opting for smaller footprints to minimize overhead.
Skrbin explains, “There are a lot of spaces that are too big for some of those tenants right now. If you do have good real estate that comes up, sometimes the size doesn’t work, and because of the high rents, it creates a big challenge from a landlord perspective in leasing those spaces.”
High construction costs compound the problem, making it expensive to reconfigure spaces for smaller tenants. As a result, some properties struggle to attract tenants despite strong overall demand.
Regional malls, once seen as a weak spot in the retail market, are making real progress in repositioning efforts. Many malls in Southern California sit at major freeway intersections and are surrounded by dense office, multifamily, and residential developments, giving them a strong foundation for redevelopment.
“Malls are very well-located assets,” Skrbin says. “In the past few years, there has just been too much retail, and that retail needs to be downsized and repurposed to other uses, whether it’s multifamily, office, hotel, or a combination of those uses.”
Much of the initial repositioning work has already been completed, with landlords and new investors taking on redevelopment projects. Even struggling malls in less desirable markets are being converted to alternative uses, as seen in Amazon’s acquisitions of malls for warehouse fulfillment centers.
After a period of limited transactions, investment activity in Southern California retail properties is picking up. Skrbin has observed increased investor interest over the past six months, although finding attractive opportunities remains challenging due to tight supply and competition.
Grocery-anchored and necessity-based retail centers stand out as the most reliable assets. Skrbin advises, “I would focus on grocery-anchored centers. Grocery is a daily need, so there will always be demand from the consumer perspective, and consumer demand for groceries and daily needs will ensure that tenants can pay their rents.” These centers have demonstrated consistent performance even in uncertain economic conditions, making them a preferred choice for both institutional and private investors.
As the region looks toward 2026, Skrbin anticipates continued stability and persistent supply constraints. “Overall, it’s going to be a stable but tight retail market. Availability is going to stay low. Construction will stay pretty muted, again because of cost, and demand will be positive but more selective.”
This environment puts a premium on landlords’ ability to curate strong tenant mixes and identify operators who can succeed in higher-rent, low-availability conditions. For tenants, success will depend on securing locations in proven trade areas and adapting to the realities of limited space and rising costs. Southern California’s retail market demonstrates how local fundamentals can override national trends, serving as a case study in how supply constraints and demographic strength can create opportunity amid broader uncertainty.
About the Expert: Stephanie Skrbin is a broker at Axiom Retail Advisors with more than 20 years of experience in tenant and landlord representation across Southern California. She specializes in retail leasing and has completed deals across a range of property types, from neighborhood shopping centers to large-format urban spaces.
This article is intended for informational purposes only and does not constitute legal, financial, or investment advice. The views and opinions expressed herein reflect those of the individuals quoted and do not represent an endorsement of any company, product, or service mentioned. Readers should conduct their own due diligence and consult qualified professionals before making any investment decisions.
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