Limited Supply Drives Down Vacancy in San Diego's Retail Sector
San Diego's retail segment hasn't produced the strongest fundamentals in the nation but overall things look at least stable.
For 2024, net absorption in the market was negative at -39,348 square feet, according to a report from JLL. While that marks the second consecutive year that the category has stayed in the red, limited supply is leading to another positive. In the fourth quarter, vacancy dropped by 20 basis points to four percent. Vacancy was at its highest levels in malls (7.5 percent). The next closest was neighborhood centers, at 4.7 percent.
"The demolition of obsolete retail space fueled by developers’ interest in redevelopment has helped the market tighten," JLL said in its report.
"Between 2020 to 2024, total retail inventory shrunk by over 1.1 million square feet." On the flip side, 1.5 million square feet of space was added between 2015 and 2019.
As of the end of 2024, less than 500,000 square feet of retail product was under construction, representing only 0.3 percent of the existing inventory. A big chunk of that includes Stockdale Capital Partners’ development in the Downtown submarket, which will add 300,000 square feet of space to the market once finished.
As supply was limited, rents in 2024 grew by 2.6 percent to $36.36 per square foot.
Looking ahead, JLL believes that the limited amount of product coming to San Diego's retail sector will help offset the industry challenges of the high cost of living, store closures, and slower employment growth. Plus, "bustling tourism" is another factor.
Source: GlobeSt/ALM