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San Diego
Wednesday, May 22, 2024
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Open Space Draws Retailers on the Move

Vacated San Diego County retail space often doesn’t stay empty for long, a continuing trend illustrated by cases like the recent closure of a Kmart store in Mission Valley.

By year’s end, that 120,000-square-foot building will be occupied by the second local store of furniture retailer Living Spaces, according to the brokerage firm CBRE, which brokered the leasing deal on behalf of the building’s owner, Sears Holdings Corp.

Mike Moser, a senior vice president in CBRE’s San Diego office who was involved in the transaction, said the owner had begun fielding queries from several prospective tenants well before the struggling Kmart store actually shut its doors. It’s a reflection of a market where new retail construction remains scarce, with very few large spaces available in existing high-profile centers to meet the needs of retailers and restaurant chains seeking to expand their San Diego presence.

Smaller spaces, in the range of 2,400 to 3,600 square feet, have also become tough to find in centralized markets like Mission Valley.

“It’s generally been tightening up,” said Moser. “There’s less space available than there was a year ago, and you’re seeing rents going up as a trend in several places throughout the county.”

According to CoStar Group, the San Diego region’s retail property vacancy rate stood at 4.6 percent at the end of the first quarter, the seventh-lowest among the nation’s largest metro markets.

On the metric of retail availability, which includes currently occupied space being marketed by owners because those leases are expiring, San Diego’s figure is 5.9 percent, tied with Miami, Fla., for third-lowest in the nation. Only Honolulu (3.7 percent) and San Francisco (4 percent) have lower availability.

Sam Tenenbaum, a real estate economist with CoStar Group, said much of the San Diego region’s 702,710 square feet of positive retail space absorption in the final quarter of 2012 resulted from the completion of a new retail center in San Ysidro — Plaza at the Border, developed by The Shamrock Group of Solana Beach — which was nearly fully pre-leased at the time it opened.

In the first quarter of 2013, the local region followed up with an additional 242,740 square feet of positive retail absorption, on par with the prior quarter and up considerably from a year ago. There remain just a few scattered new retail centers in the local construction pipeline, including three in South County, but those likely won’t be delivered until 2014 or 2015 at the earliest.

Rising Consumer Confidence

CoStar economist Ryan McCullough said the improving national employment climate and rising home sales are helping to boost consumer confidence, which is also supporting retail spending. However, the trend varies by region and income group, and even among submarkets within metro regions.

Most U.S. regions have not reached the point where the housing market is sparking major new shopping center construction, partly because there remains a lot of unused inventory. “There’s usually a lag time of 6 to 8 quarters before you see a noticeable increase in retail demand after home sales begin to rise,” McCullough said.

Officials of La Mirada-based Living Spaces were not immediately available for comment, but the Mission Valley store will be its second in San Diego County. In 2011, it opened in a Vista space previously occupied by Sam’s Club.

The improving housing market has fueled local expansion by other furniture and home improvement retailers, such as Lowe’s and locally based Fixtures Living. Other locally based firms, such as Jerome’s Furniture and Mor Furniture for Less, have been expanding outside of San Diego County.

According to local brokerage firms’ reports, big retail property sales transactions of the first quarter included Kimco Realty Corp.’s $98 million deal to acquire its institutional partner’s half-ownership stake in Santee Trolley Square; Retail Opportunity Investment Corp.’s $12.4 million acquisition of Bernardo Heights Plaza in Rancho Bernardo; and the $8.1 million purchase of Tierra Corners Shopping Center in Chula Vista, by JBM Tierra Corners LLC.

Large lease deals included grocer Korean Marketplace’s move to take 27,493 square feet in Kearny Mesa; the leasing of 13,280 square feet by electronics installer Mount It in Miramar; and Dollar Tree’s leasing of 13,200 square feet in Chula Vista.

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