Despite a holiday shopping season that didn’t quite reach expectations, the real estate market for retail property had a strong finish in 2022 and could be one of the stronger real estate sectors in 2023.
“They didn’t have the best holiday sales that they could have, year over year,” said Reg
Kobzi, a senior vice president for CBRE in San Diego who specializes in the sale of retail property.
“It’s not like they were declining. It’s just that they weren’t as good as they could have been,” Kobzi said. “Things are good.”
Overall, 2022 “was the best year ever” for retail real estate, Kobzi said, adding that there was nearly $800 million in sales of multi-tenant retail property in 2022 compared to about $650 million in 2021, and about $200 million in sales of single tenant retail property in 2022.
“The year before we had less than $100 million in single tenant (sales),” Kobzi said.
More new stores opened in 2022 than existing stores closed.
According to CBRE, there was 130 million square feet of new store openings compared to 57 million square feet of closings.
Lee & Associates reported that the fourth quarter was the seventh consecutive quarter in which net absorption was positive, “the longest streak in 10 years.”
One trend that continued in 2023 was that since the worst of the pandemic, retail leases have been for less space than they were pre-pandemic, according to Lee & Associates.
By the end of the fourth quarter of 2022, the vacancy rate on retail property had dropped to 4.9% – the lowest level since the pre-pandemic third quarter of 2019, according to CBRE.
The vacancy rate dropped in nearly every submarket in San Diego County, and across all center types, CBRE reported.
Zach DiSalvo, field research manager with CBRE, said that as a general rule, coastal North County tends to have the lowest vacancy rates, although DeSalvo said El Cajon and the east side of Chula Vista were among the better performing markets in the fourth quarter.
“There’s not a lot of product out there,” DiSalvo said.
Kobzi said that he expects vacancy rates to remain low.
“There’s barely any new construction going on so the market’s just going to get tighter and tighter,” Kobzi said.
As with all property types, rising interest rates and inflation have hurt retail, but not as much as others.
“It seems like long term rates are stabilizing right now. If they stabilize, we’re probably in a good position compared to multi-family and industrial,” Kobzi said. “Retail already took the hit at the beginning of COVID. If you’re still around, if you made it through, you’re strong. Lenders are more comfortable lending on retail. They see the track record.”
According to CBRE, San Diego remains one of the top 10 cities in the country for loan origination.
Ecommerce sales, which skyrocketed during the early days of the pandemic to the detriment of brick-and-mortar stores have cooled.
“Now they’ve kind of slowed down to pre-pandemic levels because people are getting back. They’re going out, they’re shopping,” Kobzi said.