San Diego’s retail market is showing resilience in the third quarter of the year, with increased activity from tenants and investors alike. According to a San Diego retail market report from CBRE, demand in the sector has heightened with retail sales increasing approximately 15 percent year-over-year.
“For consumers, many traditional shopping practices were put on hold last year or significantly changed. We anticipate that the retail center will regain prominence with shoppers looking for the experiences they missed,” Brandon Isner, Head of Americas Retail Research for CBRE, said.
In the third quarter of the year, San Diego reported positive net absorption of 32,976 square feet, marking the second consecutive quarter of positive net absorption. The region also reported increased leasing activity with approximately 509,907 square feet leased in the third quarter. At the same time, vacancy rates across San Diego decreased for a third consecutive quarter to approximately six percent, a 20 point decrease from the previous quarter. Total available space in the third quarter also decreased by 415,241 square feet to 5.19 million square feet.
However, some of San Diego’s submarkets saw more activity than others. San Marcos, for instance, led all submarkets with 53,068 square feet of positive net absorption. Mission Valley followed closely behind with approximately 38,899 square feet of positive net absorption in the third quarter. In comparison, Ramona led with the most negative net absorption at negative 89,596 square feet.
The largest lease signed during the third quarter was in Central San Diego, where 30,000 square feet was leased at the Village at Mira Mesa. Additionally, Joann Fabric leased 40,000 square feet at Grand Plaza in San Marcos. A 30,000 square-foot lease was also signed by Burlington at a community shopping center in Mira Mesa, and Total Wine leased 28,100 square feet at Rio Vista Shopping Center in Mission Valley.
New tenant leasing activity also drove activity from investors. The largest transaction taking place in the third quarter was for a 88,248 square-foot retail property leased to Kohl’s at 12880 Gregg Court in Poway. The property was acquired by the Peter & Ladene Aardema Family Trust for $27.5 million, or approximately $256 per square foot. Additionally, Carvana purchased a 68,505 square-foot car dealership at 1545-1551 Camino del Rio in Mission Valley for $21.7 million, or roughly $316 per square foot.
Overall, transactional and leasing activity is up from a year ago, when the retail sector was struggling from the rise of e-commerce and the bankruptcies of approximately 11 major retailers. According to the report, in July and August of 2021, the region reported no filed bankruptcies and more than 15 retail deals.
However, this strong recovery could be hindered by supply chain costs and inventory shortages. According to a similar report from CBRE which analyzed holiday retail trends, national warehouse vacancy at a historic low of 3.6 percent. Moving ahead, especially with holiday shopping, retailers and consumers alike can expect various shortages, with the ratio of retailers’ inventory levels to sales dropping to 1 to 10 this year.
Despite these challenges, CBRE does not anticipate consumers will stop shopping. Because of inventory shortages and increased shipping times, retail sales over the next few months are anticipated to increase as shoppers prepare for the holiday season. According to CBRE, total holiday sales are expected to increase to between seven percent and 10.5 percent this year, with approximately $800 billion spent during the months of November and December. E-commerce sales will increase as well, rising to between 10 percent and 15 percent over the next several months.
“We expect shoppers to return to brick and mortar retail in a big way this holiday season,” said Bill Wright, CBRE’s Retail Leader for the Americas. “E-commerce sales will grow too, but retailers are focused on building in-store inventory in preparation for higher foot traffic than we’ve seen in the last few years.”