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San Diego Retail Vacancy Falls to 4.4%, as Occupancy Growth Steady

San Diego County CA— Cushman & Wakefield’s latest H1-2017 Retail market report showed occupancy growth in this sector remains steady while vacancy dipped further to 4.4% by midyear. With supply tight, the region is also underway on a number of notable new development and redevelopment projects that look to benefit the region’s retail marketplace in the near future.

Jolanta Campion, Cushman & Wakefield’s Research Director in San Diego, said “Fueled by employment growth, San Diego’s retail market continues to maintain steady occupancy. Favorable economic conditions and demographics also continue to make San Diego a premier market for current and expanding retailers.”

As of midyear, overall retail vacancy in San Diego stood at 4.4%, down 40 basis points (bps) from the 4.8% mark posted a year ago while down substantially from the peak post-recession level of 7.2% nine years ago.

Ms. Campion noted, “Vacancy decreased a slim but meaningful 10 bps in the first half of the 2017 as a result of tenants absorbing another +57,000 square feet (sf) countywide on a net basis. 2016 had marked the fifth consecutive year of positive occupancy growth, with the first half of 2017 maintaining this positive trend.”

The best performing submarkets based on net absorption figures in the first half of 2017 were Mira Mesa (+70,600 SF), Poway (+63,600 SF) and Downtown (+54,600 SF).  Tenants contributing to the positive absorption across these submarkets highlight established retail trends: expansion of fitness centers, home improvement and sporting goods stores. In terms of sub-counties, Central County led the pace in occupancy growth with over 165,000 sf of positive net absorption through midyear 2017.

According to Phil Lyons, Managing Director of Cushman & Wakefield San Diego “Tenant demand continues to be driven by national and regional chains, most of which place the highest importance on the best-in-class centers within each trade area, fueling strong demand for Class A space. Both coastal and high-income suburban locations remain popular and command premium rents for their locations.”

He added, “Retail construction in the San Diego market remains driven by urban development and redevelopment, as well as the expansion of trophy projects in the best locations and outparcel/pad development in existing shopping centers.

“Of the projects currently under construction, the majority are located in the urban locations of Downtown and Uptown,” said Chad Iafrate, Senior Director of Cushman & Wakefield San Diego, who went on to describe several projects happening in San Diego County. “Park 12 in downtown is set to be delivered in 2017 and will include 713 residential units and a 12,000 sf open air plaza. While located in suburban submarket, the Millenia development in Chula Vista with 131,000 sf of retail under construction, strives to mimic urban development with walkable promenades, parks, services, shops and restaurants. It is billed as a ‘pedestrian paradise’.

“Kilroy’s One Paseo shopping center held its ground-breaking ceremony in January 2017.  While scaled down from original plans, One Paseo is slated to include office and residential and will total approximately 1.1 msf when fully built out. The $225 million first phase includes 95,000 sf of retail, with retail tenants not yet announced, and the initial segment of apartments. Across the street, Donahue Schriber Realty Group announced a 120,000 sf expansion at Del Mar Highlands Town Center due to be completed in 2018. The centerpiece of the new Collection at Del Mar Highlands Town Center will be a 25,000 sf Jimbo’s, a natural foods grocer.

“Phase II of Westfield UTC’s $600 million ‘resort-inspired transformation’ is expected to complete soon ahead by October 2017. Increasing the total project size by 30%, this expansion will feature an additional 90 new shops and chef-driven restaurants all totaling 251,000 sf plus an 18,000 sf indoor/outdoor event space.  Meanwhile Sears, one of the anchor stores, is on its way out with no announced replacement, a 149,000 sf two-level Nordstrom department store will also debut mid October 2017. Nordstrom will also introduce a contemporary restaurant named Bazille. There are also a number of other restaurants that have been announced including Larsen’s Steakhouse, San Diego based Napizza, Javier’s (from Newport Beach), Din Tai Fung, Arbor, Smokeyard BBQ and Chop House, True Food Kitchen, Great Maple and Winery Restaurant & Wine Bar.”

The report indicated the department store sector continues to feel growing pains as Macy’s announced the closure of 100 stores during 2017. The closures included a location at Westfield Mission Valley which had been open since 1961.  Nordstrom also closed their Westfield Horton Plaza location in 2016 due to lagging sales; however, Westfield has purchased the prime downtown real estate and will consider redevelopment opportunities Sears announced a closure of 28 stores nationwide including the Westfield UTC location. BCBG Max Azria Group announced a closure of 118 location nationwide, including the locations at the Westfield Horton Plaza in Downtown and Carlsbad Outlet mall due to Chapter 11 bankruptcy filing.

Mr. Iafrate concluded, “Looking ahead, we expect strong demand for space in San Diego County through 2017 as a result of its strong demographics. Limited space opportunities and constrained supply will drive rents upward, particularly in Class A centers and in urban areas.

“New construction or redevelopment will continue in response to the constrained supply.  Developers and landlords will seek opportunities to create amenity-rich experiences in mixed-use environments. Luxury and upscale retail concepts will continue to expand with nearly all of their growth occurring in urban settings. Tenants will also seek out spaces in new development, Class A centers in the best locations.”

  • CLICK HERE to access Q2 2017 San Diego Retail Snapshot with historical data.
  • CLICK HERE to access  Q2 2017 San Diego Retail MarketBeat Report..

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