As we approach the end of 2025, the retail real estate market across California and the Western U.S. tells a complex story—one that requires us to look beyond the headlines to understand what’s happening locally.
At LRE & Co, we focus on creating spaces where retail can succeed. That means we can’t be too optimistic or too pessimistic. We need to see the market clearly, understand the trends shaping it, and plan accordingly. Here’s what we’re observing.
The Tale of Two Retail Markets
The Los Angeles retail market in Q3 2025 experienced a slight increase in vacancy to 5.7%, along with nearly a 5% year-over-year decrease in asking rents, while construction activity declined sharply. However, these figures do not tell the full story.
Southern California’s retail sector has shown strong resilience, with vacancy rates in the low-to-mid single digits across most submarkets. This contradiction—declining rents alongside low vacancy—indicates a market in transition rather than a collapse.
The reality? Prime locations with strong demographics continue to command high rents and attract quality tenants. Meanwhile, older properties in weaker markets face increasing challenges. The gap between A-class and B/C-class retail has never been wider.
The Closure Headlines vs. The Ground Truth
Yes, the number of closures is concerning. Retailers reported 57% more closures in 2024 than in 2023, with major chains like Party City, Big Lots, and Walgreens shutting down hundreds of locations. California was hit hardest—more than 2,100 brick-and-mortar stores across the state either closed or announced closures.
But context matters. Many of these closures are part of portfolio optimization, not industry collapse. Retailers are closing underperforming locations while expanding in stronger markets. Kroger announced the closure of about 60 underperforming stores while also planning to open around 30 new stores with updated layouts.
What we’re witnessing isn’t the death of retail—it’s evolution. Retailers that fail to adapt to changing consumer expectations, incorporate digital strategies, or provide compelling in-store experiences are being driven out. Those that innovate are flourishing.
The Experience Economy Takes Center Stage
The most important trend shaping retail in 2025 is the shift toward experiential retail. Consumers, especially younger groups, want more than just transactions; they seek memorable experiences worth sharing.
Approximately 21% of food and beverage businesses are adding experiential options like ticketed tasting events, chef-led classes, and themed dining nights. This trend isn’t limited to restaurants. Retail concepts that include entertainment, customization, and immersive environments are doing well.
As developers, this fundamentally shifts our approach. We’re no longer just creating boxes for tenants to occupy. We’re designing destinations that foster lingering, exploration, and social connection. Mixed-use developments that blend retail, dining, entertainment, and community spaces are exceeding the performance of single-use retail centers.
The Food Service Bright Spot
While traditional retail faces challenges, food service continues to demonstrate resilience. Food service and drinking places increased by 6.7% year over year in September 2025, significantly surpassing overall retail growth.
But even here, the market remains selective. Searches for budget-friendly dining options increased in early 2025, with “cheap eats” rising 21% and “meal deal” up 117%. Consumers seek value but are still willing to pay for quality experiences and small indulgences.
The top performers in food service are those providing either outstanding value or a memorable experience—the middle ground is becoming harder to maintain. Fast-casual concepts with strong value offers and upscale dining venues with memorable experiences both succeed. It’s the traditional sit-down chains lacking differentiation that face the toughest environment.
Construction Reality: Limited Supply, Strategic Opportunity
New retail construction in Southern California remains limited because of high costs and cautious lenders, resulting in very few new ground-up retail projects. Instead, the focus has shifted to redevelopment, such as transforming struggling malls, renovating older centers, and repositioning existing assets.
This limited supply creates an opportunity for well-funded developers willing to pursue adaptive reuse projects. The absence of new construction supports strong fundamentals for quality existing retail, while distressed properties trade at prices that can justify major renovation investments.
At LRE & Co, we’re noticing increased interest in hybrid approaches: adding residential components to retail centers, incorporating EV charging infrastructure, and creating flexible spaces that can adapt to changing tenant needs.
What’s Working in 2025
Based on our portfolio and market observation, here’s what’s performing:
Convenience-anchored centers remain remarkably stable. As we’ve discussed before, quality convenience store operators drive consistent traffic that benefits surrounding tenants.
Service-oriented retail—salons, fitness concepts, and healthcare services—continues to grow. These businesses can’t be replicated online and serve essential local needs.
Grocery-anchored centers in strong demographics maintain healthy occupancy and rent growth. People still need to eat, and while online grocery shopping has grown, most shoppers prefer in-person selection for fresh products.
Entertainment and experience concepts—from entertainment venues to boutique fitness—are thriving where consumers are willing to pay for unique experiences.
California-Specific Challenges
California’s regulatory environment, higher operating costs, and the increased minimum wage continue to pose challenges. California retailers earned $743 billion in sales in 2024, but profit margins remain under pressure.
The surrounding states—Nevada, Arizona, and Oregon—provide alternative opportunities with a more favorable business climate. We’re seeing California retailers expand into these markets, and developers are following. The Western U.S. retail market increasingly functions as one interconnected region rather than as separate state-by-state entities.
Looking Forward
The retail market in 2025 isn’t broken; it’s being rebuilt. The old playbook of generic strip centers and cookie-cutter tenant mixes no longer works. Success requires:
- Strategic location selection based on solid demographics and traffic patterns
- Experience-focused design that creates destinations, not just shopping centers
- Flexible spaces that can adapt to changing tenant needs
- Technology integration from EV charging to digital wayfinding
- Community connection through programming, events, and local partnerships
Developers, retailers, and property owners who succeed in this environment treat retail real estate as a dynamic, evolving product rather than a static asset class.
Yes, 2025 has been challenging. But challenges create opportunities for those willing to adapt, invest wisely, and build for the future instead of the past. The retail market isn’t dying; it’s just demanding better.
And honestly, that’s exactly what it should do.