San Diego’s retail sector is making a strong comeback after a troublesome two years, according to two commercial real estate brokerages.
CBRE and Cushman & Wakefield reported that the retail numbers for the third quarter of 2021 showed that the market was on the mend.
“We’re definitely going in the right direction,” said Michael Peterson, a vice president of CBRE and retail division chairman.
“It feels like this is a bounce and we’re coming out of this,” Peterson said.
Of particular note is that soft goods companies such as Burlington and Joann Fabric and Craft Stores were back in the county leasing market, Peterson said.
Burlington leased 30,000 square feet of space in the Village at Mira Mesa in Mira Mesa and Joann Fabric leased 40,000 square feet of space at Grand Plaza in San Marcos.
“These are all soft goods retail tenants. To see them coming back into the marketplace is very encouraging for landlords. That’s the activity we want to see,” Peterson said. “To see deals being done coming out of the pandemic and national retailers wanting to fill in brick and motor space is certainly encouraging to landlords across the county.”
A notable change in the market is that brick and mortar retailers have learned to coexist with ecommerce companies by adapting to allow online shopping with in-store pick up.
Some have formed mutually beneficial alliances with big ecommerce companies by allowing people who bought online through the big companies to make returns through their stores.
Once customers are in the stores, they’re likely to buy more, Peterson said.
Against that backdrop, Cushman & Wakefield reported that asking rents for retail space were on the rise in the third quarter, reaching an average of $2.45 per square foot countywide, a 6.1% increase over a year ago and higher than the 10-year quarterly average of $1.91 per square foot.
At the same time, companies that held off making a move are finding less to choose from, according to Cushman & Wakefield.
“The tenants that actively pursued leases at the end of 2020 and the beginning of 2021 were able to secure the top available locations,” the firm reported. “This left the rest of the operators competing for fewer available opportunities.”
CBRE reported that the retail vacancy rate in the third quarter decreased for the third consecutive quarter, dropping to 6%.
“It appears the worst vacancy rates of the pandemic are behind us,” CBRE reported.
Available retail space fell in the third quarter by 415,241 square feet to about 5.2 million square feet, according to CBRE.
Several county retail properties also have been sold.
Among the most recent, a 13,000 square-foot retail center in Carlsbad Village was sold for nearly $7.4 million in a deal brokered by Joe Brady of Urban Property Group on behalf of the buyer, The Caine Group, and Mike Conger of Commercial Asset Advisors on behalf of the seller.
Against this backdrop, Cushman and Wakefield reported that asking rents were on the rise in the third quarter, pointing to renewed optimism in the market.