LocalBitcoin's volume has definitely been shrinking ever since they imposed mandatory KYC, about two and a half years ago.

But they are currently (and still) a custodial wallet service. It's possible that they saw what happened with Bitzlato (in which LocalBitcoins was mentioned in the charges against Bitzlato's founder) and then decided they would prefer to shut down than further risk the same fate. To switch to being a non-custodial service would not be a small undertaking (and years away from completion, if they were to just start building that now) and that might have been the only option they had in order to continue as a P2P exchange.

LocalCoinSwap.com, another active P2P trading platform, just eliminated their custodial wallet trading (which existed for trading of some coins on their platform, include bitcoin).

Now LocalCryptos.com (the most active P2P platform that did not require identity verification / KYC) also shut down a few months ago. That one's a head scratcher -- that likely would have found a buyer if they put it up for sale. I suspect maybe for them (and for LocalBitcoins), shutting down was something that also would take them out of the regulator's target zone.