San Diego ranks ninth among U.S. metro markets in the latest annual retail property investment report by brokerage firm Marcus & Millichap.
The local market dropped four places from its 2015 ranking of 46 major U.S. markets, based on factors including job growth, vacancy, rent growth, construction and other supply and demand variables. The ranking is intended to serve as a guide to nationwide retail property investors.
San Francisco tops the 2016 ranking, followed by Austin, Seattle-Tacoma, San Jose, Los Angeles, New York City, Orange County and Miami-Dade, Fla., with Boston rounding out the Top 10.
The local market has ranked among the top U.S. retail investment regions for the past several years, due to factors including limited construction, land availability and other barriers to entry for development.
Marcus & Millichap researchers said steady employment gains will continue to fuel consumer spending in San Diego in 2016, translating to rising retail sales and strengthening tenant demand. The region is expected to add 39,000 jobs this year, for a 2.8 percent gain, following a 2.7 percent increase in 2015.
Completion of new local retail spaces is expected to decline this year, with 375,000 square feet of new space coming online by year’s end. Builders added 650,000 square feet of retail space in 2015.
San Diego’s retail vacancy is expected to reach its lowest point since the recession, 4.8 percent by year’s end, fueled in part by the return of small-business tenants to multi-tenant centers. That is projected to spur a 2.5 percent rise in rents over 2015, reaching an average annual rate of $23.62 per square foot, after rents grew 0.3 percent last year.
On the investment front, local strip centers containing two to four national or regional high-credit tenants “are drawing significant buyer interest,” the report said.
Marcus & Millichap said stabilization of properties across the metro region should spur retail construction to resume, “and several projects loom in the pipeline that would provide some relief to the heightened demand for area retail space.”