As crews battle the flames that remain after wildfires tore through neighborhoods in and around Los Angeles two weeks ago, residents and business owners are returning to find their communities flattened.
Most of the estimated 16,000 structures damaged or destroyed by the largest two fires — the Palisades and Eaton fires — were single-family homes or multifamily properties. But the fires set themselves apart from the infernos that have become increasingly common in California by blazing through commercial districts and taking down retail properties as well.
While the retail loss represents a relative sliver of the overall market, the establishments themselves served a greater purpose in their communities and have left behind a gap where a gathering place used to be.
The devastation from recent LA wildfires has harmed local retail real estate.
“The bigger issue is that you’ve lost a place,” Greensfelder Real Estate Strategy founder and Managing Principal David Greensfelder said. “We know how to rebuild a grocery store. But what’s happened is we’ve lost these places where people gather. Retail is really key to forming these relationships.
Roughly 32.2% of the commercial properties in the burn were mixed-use and retail, covering roughly 901K SF, according to an Altus Group analysis, much of it decades old. Altus found 146 commercial properties spanning roughly 2M SF in the burn area.
The wildfires’ impact on Los Angeles, including how it alters the retail market, depends greatly on the neighborhoods that have been damaged.
“In my mind, it’s always location, location,” Altus Global Head of Valuation Advisory Robby Tandjung said. “The location of these stores is still a good location, so eventually they will be rebuilt. When you rebuild, you’ll get a new physical asset. In the long run, it will be better than before.”
A handful of large retailers, including Target, AutoZone and RH, were identified as the most exposed, according to a JP Morgan analysis. But it is the smaller, independent stores that many fear will struggle that face the most hurdles in rebuilding and reopening.
Both the Pacific Palisades and Altadena, which have each seen thousands of homes destroyed and the temporary relocation of residents, were filled with their own small shops, retail favorites and mom-and-pop commercial landlords. The Palisades in particular, due to its more secluded location, had a more self-contained retail market.
These two neighborhoods don’t represent a significant amount of square footage in the grand scheme of the larger Los Angeles retail market, said JLL National Agency Retail Lead Chris Wilson.
In Palisades, developments along Sunset Boulevard, including lots of small independent businesses, are gone. Additionally, the local population, which serves as the demand driver for these businesses, has departed, Greenfelder said.
Altadena retail recovery may struggle in a different sense. The area isn’t as high-income as the Palisades, meaning fewer residents with significant enough resources to rebuild and perhaps a slower time recovering population and local demand.
This displacement will have long-term impacts on local and even regional retail and real estate, with small businesses seeking to reconnect with customers and a larger CRE market that already faces a shortage of new storefront real estate seeking to adjust.
“We already had a retail shortage,” said NewMark Merrill Cos. CEO Sandy Sigal.
“We effectively haven’t had any new construction on the margins for several years. This is going to drive the fundamentals stronger, and for certain communities, to the breaking point.”
Damage from the Palisades fire on Jan. 19, 2025.
A 2024 Moody’s analysis of the Los Angeles region found just shy of 70M total SF of retail inventory, with 8.1% vacancy, some of the lowest in the nation.
Sigal believes there will be a significant number of relocations and temporary pop-ups featuring many businesses that lost their homes to the fire. He said his company is already in talks with some owners, especially restaurant owners, to have them hold pop-ups at NewMark Merrill properties in Los Angeles, including sites in Thousand Oaks and Inglewood.
Going forward, displaced businesses will likely be looking at how population centers have and will shift, Sigal said. He predicts many will sign shorter-term leases, perhaps three to five years, in anticipation of trying to move — or move back — once rebuilding has picked up more momentum.
Other commercial sectors may see boosts during the early reconstruction period. Piper Sandler Managing Director Alexander Goldfarb suggested in an early analysis that office and warehouses on the Westside might benefit, given the need to store materials for rebuilding and the demand for lawyers, architects and others connected to reconstruction efforts.
Sigal also believes that as retail rebuilds in neighborhoods like Altadena or the Palisades, they will phase in development, open smaller versions as neighbors start rebuilding and moving back, and then expand as the neighborhood begins to fill out.
Long-term owners could find themselves with a chance to change their space and update outdated physical conditions in a way they couldn’t afford previously. Owners will need to rethink the value of their property, replacement costs and whether or not it’s the highest and best use of the land. The Altus Group analysis found that the average retail or mixed-use property in Altadena and the Palisades was first constructed in the 1950s.
“[Owners] are going to look and say, ‘Is there a demand for what I do, and what I’m rebuilding today, and how does the insurance all play with that story?’” Sigal said. “I think these communities’ best days may actually still be ahead of them. It’s just going to be a long haul to get there.”