REAL ESTATE NEWS

California's retail sector is poised for a strong overall performance in 2026, supported by improving sentiment, selective development and shifting consumer behavior.

According to the Winter 2026 Allen Matkins/UCLA Anderson Forecast, retail sentiment has strengthened across all major California markets, with the southern region in the state showing the most notable improvement in optimism. This positive outlook reflects expectations of stable demand, although developers remain cautious about launching a full new retail growth cycle before 2027, with many still uncertain about near-term conditions, according to Allen Matkins.

Development Trends

Development activity is expected to be highly selective. Northern California markets are showing stronger near-term development interest than Southern California, with new projects focusing on infill and retail serving residential areas rather than large-format or mall-based concepts, according to Allen Matkins. This shift reflects broader national trends favoring convenience-oriented retail and mixed-use environments.

Broader U.S. retail real estate predictions for 2026 highlight continued growth in store openings, rising rents and steady investment momentum, with grocery-anchored retail remaining a standout category for new development and investor interest, according to an ICSC report. These national trends are consistent with California's focus on necessity-based retail and infill projects.

Retailer Performance and Market Bifurcation

The California retail landscape in 2026 is marked by a widening divide between thriving and struggling retail categories. A statewide assessment notes that traditional mid-tier retailers face unprecedented challenges, with nearly 300 retail chains nationwide announcing store closures in 2026 and bankruptcy filings rising 11% in 2025, with continued momentum into this year, according to DTM Agency Group.

In contrast, value-focused and luxury retailers are expected to perform well, benefiting from structural shifts in consumer behavior toward value-seeking and premium experiences rather than temporary economic responses, according to DTM.

Off-price, discount and warehouse retailers are projected to experience exceptional growth, reinforcing their role as key anchors in California's retail ecosystem. Meanwhile, traditional department stores and mid-tier chains face existential threats as consumer preferences continue to evolve away from legacy formats, according to DTM.

Expansions to Lead to Stabilized Occupancy

National retail forecasts indicate that after uneven demand in 2025, net absorption is expected to stabilize in 2026. Expansions by grocery, value and service-oriented retailers are projected to offset the continued restraint among discretionary retailers, helping maintain broadly stable occupancy levels across markets such as Los Angeles, San Diego, the Bay Area and Sacramento, according to CBRE.

This aligns with California-specific sentiment, showing optimism but tempered expectations for large-scale new development.

Shifting Alcohol Trends Represent a Challenge

Meanwhile, the most significant shift hitting national restaurants right now is the steep drop in alcohol consumption among guests, according to Allen Matkins.

Operators who rely on alcohol sales are feeling this immediately, because those drinks carry some of the highest margins in the entire business. When customers pull back on alcohol, restaurants lose perhaps the most profitable part of the check.

This isn't a temporary dip related to the economy or a passing trend, rather it's tied to a deeper cultural shift in how people socialize. More interactions now happen digitally rather than in person, which means fewer spontaneous nights out and fewer opportunities where alcohol naturally fits into the social setting. People are choosing smaller, more intimate gatherings—often with family or close friends—where drinking isn't expected or needed as a social catalyst.

For restaurants, the traditional model of boosting profitability through bar programs is under pressure. Unless people fundamentally change how they use their devices and return to more in-person, unstructured socializing, this lower-alcohol environment is likely to persist.

Source: GlobeSt/ALM