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5/02/16
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Fundamentals for San Diego’s retail market were stable this quarter, according to the latest research from CBRE. The region continued to be impacted by changes in the grocery store industry this quarter, however, that trend is expected to slow going forward.
Net absorption this quarter was negative 42.2k sf—the majority of the negative absorption was caused by two Haggen’s Food & Pharmacy closings in Rancho Penasquitos and two Smart & Final surplus spaces put on the market for lease.
“The main driver of the negative net absorption was due to the grocery store shakeup, however the retail market is on pace for sustainable growth, with numerous proposed projects in the pipeline,” said Reg Kobzi, senior vice president of CBRE in the San Diego region who specializes in retail.
Average asking lease rates were flat quarter over quarter and up 9.1 percent year over year. The overall rate is still below the pre-recession peak, and has remained flat or increased for seven consecutive quarters.
Overall vacancy increased slightly quarter over quarter to 5.8 percent, while the vacancy rate has been steady at between 5.6 percent and 6.6 percent since Q1 2014.
The 19 vacant big box retail spaces in San Diego add up to 708.6k sf; nine of these are shuttered grocery stores. Sports Authority declared bankruptcy in March of 2016, three of the eight San Diego locations will close (La Mesa, El Cajon, and Escondido), potentially adding 100.2k sf of big box space to the market.
Leasing activity among big box spaces remained active throughout the year with 18 spaces, or 679.6k sf, absorbed over 2015. Eight of these were grocery stores and four were fitness centers; which indicate these users remain prevalent. The recent announcement from Sports Authority provides opportunities for a new anchor to either expand or enter the San Diego market.
After a strong 2015 with 608.5k sf of deliveries, which drove most of the positive activity throughout the year, no new projects were delivered this quarter. There was new construction activity; a 38.7k sf strip center broke ground in the Mid-City/El Cajon Boulevard submarket. Several redevelopments were in progress this quarter throughout the market, including the Shops at La Jolla Village in UTC, Westfield UTC, Gateway Marketplace in Chula Vista and Encinitas Village Square.
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