Pockets of new development in the San Diego region, combined with tight vacancies, are expected to spur investor competition for a scarce supply of available retail properties for the rest of 2017, according to a new third-quarter outlook report from brokerage firm Marcus & Millichap.
Researchers said the region is expected to end the year with a retail vacancy rate at 4.1 percent, on par with 2016, with the average annual asking rent per-square-foot rising 2.1 percent from last year, to $23.90.
Marcus & Millichap projected that the San Diego region will end 2017 with 756,000 square feet of new retail space completed and delivered to market – a big increase from 2016’s 398,000 square feet – although the 2017 number is skewed by the nearly completed $600 million renovation and expansion of the Westfield UTC mall.
Westfield Corp.’s project, expected to be completed later this month, will bring the region its highest new total retail space delivery in the past 10 years. Marcus & Millichap said the net new retail space coming online at Westfield UTC spans 401,000 square feet, including a new free-standing Nordstrom store and a multi-tenant expansion of the existing center.
The brokerage firm said most other local retail space deliveries of 2017’s second half will not exceed 10,000 square feet, with limited new space being added in Central San Diego, the South Bay area and East County.
Regional factors bolstering San Diego’s overall retail demand metrics include continued job creation and household formations, with 7,250 new apartments slated for completion in the next 18 months.
Marcus & Millichap tracks markets nationwide, with its quarterly outlook reports intended to serve as a guide to prospective investors. Marcus and other firms have noted that San Diego for the past decade has remained among the nation’s tightest metro retail markets, due to factors including limited new construction and high demand in submarkets that have demographics attractive to retailers, restaurant operators and other tenants.