San Diego’s market for retail property is weathering the current economic downtown fairly well, unlike some other areas of the country, with more people looking for space to lease than there’s space available.
“The market has been very resilient and hung in there,” said John Hickman, a partner with NewMark Merrill Companies, which owns and manages shopping centers in San Diego County and elsewhere.
“Our leasing levels remain very high,” Hickman said. “We see that traffic at our properties has certainly returned to pre-pandemic levels, and in many cases, has exceeded pre-pandemic levels.”
Nationally, JLL reported that the pace of growth has slowed from last year, with the absorption of retail space dropping from 20.1 million square feet in the fourth quarter of 2022 to 9.1 million square feet in the first quarter of 2023, but “topline vacancies remain at a historical low of 4.2%.”
Helping to keep demand for retail space high in San Diego County is the lack of much new construction.
“We don’t have a lot of new development. San Diego is built out in a lot of areas and there’s not as much construction as there used to be. What that’s done is helped all the existing guys (property owners) keep their centers reasonably well occupied,” Hickman said.
When national retail chains, such as Bed Bath & Beyond shut down Hickman said that there are other businesses eager to take the space.
“Bed Bath & Beyond had several stores in San Diego, and they’ve all been leased,” Hickman said.
Similarly, Brian Quinn, a senior vice president of JLL who specializes in retail leasing, said that, “the spaces that are available or coming available in the quality centers are getting leased to quality retailers at good rates.”
“There’s still a bullish mentality,” Quinn said. “There are a lot of tenants that want to be here.”
Quinn said that bankruptcies that have plagued some of the national chains “are creating opportunities for well-capitalized retailers to expand their footprint in San Diego County, where barriers for entry are high and there is limited supply.”
Craig Killman, executive vice president of JLL, said that consumer shopping habits contribute to a strong retail market in San Diego County.
Unlike places like Los Angeles, where shoppers roam the region when shopping, San Diego consumers tend to stay within their own neighborhoods.
“We don’t cross-shop very well,” Killman said. “That adds to the vitality of retailers. Once they’re established in a community, they do really well.”
Hickman of NewMark Merrill is optimistic about what lies ahead for San Diego’s retail environment.
“Absent some big shock wave that’s external, it strikes me that our market is going to hang in there for the rest of this year, be solid,” Hickman said. “We’re not seeing any indications yet of a significant pullback.”