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Retail Market Remains Positive with a Strong Development Pipeline

Part two of three

San Diego County CA— According to CBRE Research San Diego’s retail market (see report here [Link]) started off with another positive quarter. The development pipeline is filling up with more than 27 planned projects covering over 3.5 million square feet of retail space planned for delivery in the next couple of years. Many of the projects such as One Paseo, Civita, and Horton Plaza are rethinking the traditional retail center and seek to offer experiential amenities to attract a healthy mix of retail users, according to CBRE Research.

Asking lease rates have remained relatively flat over the past 17 quarters, however they have increased over the last two quarters by 10 percent bringing the rate to $1.99. There is still room for improvement because the rates are 17.4 percent below the peak of $2.41 in Q4 2008.  Most of the rent growth can be attributed to San Diego’s desirable submarkets, which include Encinitas, Del Mar/Solana Beach, Downtown/Hillcrest, UTC, La Jolla, Mission Valley and Pacific Beach. These submarkets posted a combined $0.18 increase between quarters.

“Pacific Highlands Ranch is great indicator on the demand for space in the retail market. The center is 70 percent pre-leased, with offers on every space, says Reg Kobzi, senior vice president at CBRE in San Diego. “Starbucks and Trader Joe’s are successfully opened and we plan to have our grand opening in late summer.”

Overall net absorption was positive for the third consecutive quarter, posting 333,476 square feet which was due in part to the delivery of La Costa Towne Square. This quarter’s vacancy rate of 5.6 percent marks the lowest rate the market has seen post-recession. As the market continues to tighten, expect leases rates to continue to increase as landlords gain pricing power in lease negations.