Southern California Retail Market Outlook: What We're Seeing in 2026

After three decades in the Southern California retail real estate market, we have learned to be skeptical of broad market narratives. National reports about “the death of retail” or “the great retail comeback” rarely capture what is actually happening on the ground in the submarkets where our clients operate.

Here is what we are seeing across our core markets as we head into mid-2026 — based not on aggregate data, but on the deals we are working, the landlords we are talking to, and the tenants who are actively looking for space.

Orange County: Tight Inventory, Selective Tenants

Retail vacancy in Orange County remains among the lowest in the state, particularly in the South County submarkets from Irvine south to San Clemente. Quality retail space with good visibility, adequate parking, and proximity to residential rooftops is genuinely difficult to find. When desirable spaces do come to market, they move quickly — often through broker relationships before a listing goes live.

That said, tenants are being more disciplined than they were two years ago. We are seeing longer decision cycles, more emphasis on demographic analysis before committing, and greater sensitivity to total occupancy costs — particularly NNN charges, which have risen as property insurance and maintenance costs have climbed. Tenants who did their homework and secured favorable lease terms during the 2020-2021 window are now in strong positions; those negotiating new leases are working harder for the same economics.

Restaurant tenants continue to drive much of the absorption in Orange County. Fast-casual concepts, in particular, are actively seeking second and third locations. We are also seeing renewed interest from health and wellness tenants — dental offices, physical therapy, med-spas — that value the foot traffic generated by restaurant-anchored centers.

Los Angeles County: Pockets of Strength and Weakness

Los Angeles is, as always, a story of micro-markets. The retail fundamentals along the Westside and South Bay corridors remain strong, with asking rents that can be double what comparable space commands in Orange County. The San Gabriel Valley has been a consistent performer driven by its dense residential base and strong independent restaurant scene.

Other parts of the county present challenges. Higher crime rates in certain neighborhoods, persistent homelessness issues near retail corridors, and long permitting timelines in the City of Los Angeles have pushed some national tenants to prioritize Orange County and Inland Empire locations instead.

For landlords in strong LA submarkets, the leverage is firmly on their side. For those in transitional areas, creative deal structuring — shorter initial terms, graduated rent, higher TI allowances — may be necessary to attract the quality tenants who will stabilize the property.

Inland Empire: The Expansion Market

The Inland Empire continues to be where growth-oriented tenants go when coastal markets are too expensive or too competitive. We have seen increasing interest from restaurant chains and service retailers looking at communities in western Riverside County and the San Bernardino mountain communities.

Lease rates in the Inland Empire are typically 30-50% below comparable Orange County properties, which makes the math work for tenants who need larger footprints or whose concepts perform better in suburban environments with drive-through access. We are also seeing an uptick in interest in mountain resort communities like Lake Arrowhead and Big Bear, where seasonal tourism supports retail that might otherwise struggle on weekday traffic alone.

What We Are Telling Our Clients

For tenants: do your site selection homework upfront. The days of finding a great space at below-market rates are largely over in coastal Southern California. Work with a broker who knows the local market, secure favorable lease terms while you have leverage, and do not let a seemingly attractive rental rate distract from high NNN charges or poor co-tenancy.

For landlords: quality tenants have options, and they know it. Maintaining your property, curating a complementary tenant mix, and being responsive during the leasing process are no longer optional — they are what separates centers that run at 95% occupancy from those stuck at 80%.

As always, we are happy to discuss how these trends affect your specific situation. Reach out to our team at (949) 916-8304 or leasing@digitalre.com.