SAN DIEGO, Calif., February 7, 2019 – Cushman & Wakefield’s Year-End Retail Market Report for San Diego reflected a level change in retail growth in the region in 2018, but the firm’s experts still have a strong sense of optimism moving forward into 2019. The region’s retail vacancy rate increased a modest 50 basis points (bps) since midyear, moving it back a nudge to 4.5%. The rate is up from 4.1% in 2017. Meanwhile, rents continued an upward trajectory through the year.
Jolanta Campion, Cushman & Wakefield’s Research Director in San Diego. “The moderate level of occupancy loss in 2018, all stemming from the last six months of 2018, comes on the heels of six consecutive calendar years (2012-2017) of steady occupancy gains in which the market absorbed a scorching more than 1.8 million square feet of space.”
She added, “The top performing submarkets by square feet absorbed in the second half of 2018 were Downtown (+117,000 sf), Escondido (+49,000 sf) Mira Mesa/Miramar (+21,000 sf). Tenants contributing to the positive absorption across these submarkets were driven by established retail trends, expansion of specialty grocers as well as food and beverage/event spaces.”
The biggest occupancy gains during the year were found in Strip Centers and Free-standing with 90,300 sf and 32,700 sf of positive net growth, respectively. In contrast, Neighborhood (-101,000 sf), Power (61,600 sf), and Community (55,000 sf) centers incurred the most losses. Regional Centers were virtually even.
Among San Diego’s largest new occupancies in the second half of 2018 was El Super in Escondido. The specialty Hispanic supermarket is located in a newly delivered 43,500-sf store within the Centerpoint-78 neighborhood center. The building was a build-to-suit for El Super.
Chad Iafrate, CCIM, Senior Director, added, “Another key move-in was the Little Italy Food Hall, opening in nearly 18,000 sf on the ground floor of a new apartment building in the popular downtown neighborhood, an area known for its walkability and excellent eateries (both Italian and non-Italian).” He continued, “A rising national trend, we expect food halls to soon-be considered the ultimate amenity in both urban environments and suburban malls. In San Diego, Liberty Public Market at Liberty Station is a very successful example, while others in development include Windmill Food Hall in Carlsbad, Park Commons in Sorrento Valley, Pan y Sal in Barrio Logan and The Outpost Urban Food Hall in Poway.”
He added, “Further leading to downtown’s growth success in the second-half were CVS into 19,000 sf and then The Boxing Club moving into 15,000 sf of newly-constructed space in the central business district.”
Despite countywide occupancy growth being flat for the year, with vacancy still sub 5%, San Diego’s overall average asking rent for retail jumped to $2.42 per square foot (psf) per month on a triple net basis at the close of 2018, a 7.5% increase from year-end 2017. Del Mar, which boasts a mere 3.9% vacancy rate, remains the premier target trade area for expanding retailers, keeping rents among the highest in the county, averaging $4.80. Other high-cost submarkets are Carlsbad ($3.88 psf) and Encinitas ($3.86 psf).
Phil Lyons, Managing Director of Cushman & Wakefield San Diego, expressed, “Until we really begin to see the official arrival of new Class A product, which largely still remains under construction, we’re likely to continue to see restrained growth, given supply does still remain relatively constrained.”
The report indicates there is currently over 500,000 sf of retail under construction countywide, including prominent centers like The Del Mar Highlands Town Center & The Shoppes at One Paseo in Del Mar, Millenia Town Center in Chula Vista, and the Square at Bressi Ranch in Carlsbad. Drivers of construction include demand for mixed-use retail experiences, urban development and redevelopment, as well as the expansion of trophy projects and outparcel/pad development in existing shopping centers. Such example is Millenia, which while located in a suburban submarket, the 131,000-sf retail center strives to mimic urban development with walkable promenades, parks, services, shops and restaurants. With an expected delivery in 2019, it is being billed as a ‘pedestrian paradise’.
The much-awaited expansion of the Del Mar Highlands Town Center includes a newly completed 800 car parking structure and 120,000 sf of new retail. A new state of the art Jimbo’s Natural Grocer, a 25,000 sf restaurant collective called The Sky Deck, consisting of eight to nine unique restaurant concepts and an outdoor beer garden, a boutique fitness row and new lifestyle retail shops will highlight the expansion.
Lyons concluded, “With continued strong economic trends, diverse job growth, and its desirable climate, San Diego will remain a popular destination for retailers from both inside and outside the region, who seek our attractive demographic composition as well as coastal vibe. We are optimistic that with the expected completions on the horizon, we should return to more noticeable levels of growth.”
CLICK HERE for 2H 2018 San Diego Retail MarketBeat Report
CLICK HERE for 2H 2018 San Diego Retail Market Snapshot (submarket & historical data)