San Diego’s retail real estate market is slowly recovering from the pandemic but some fear that the recovery might take longer than expected due to the latest surge in COVID cases.
CBRE, a commercial real estate brokerage firm, wrote in its second quarter report on the San Diego market that positive net absorption – a measure of how much space is newly occupied verses vacated – reached 112,527 square feet, marking the first positive new absorption in eight quarters.
New leasing activity reached 374,590 square feet, just below the 2016-2020 quarter average, according to CBRE.
Getting In
Restaurants are recovering faster than other segments of the retail market as people are eager to get back out.
Craig Killman, a senior vice president with the commercial brokerage JLL, said that anecdotally, he’s seen some restaurants so crowded that it’s hard to get reservations.
At the same time, Killman said the uptick in COVID cases with new variants has the retail market a little skittish.
Strip shopping centers are seeing an influx of investors and the mix of retailers in bigger malls and shopping centers may be tipping in favor of national chain operations which have the resources to weather any downturn, Killman said.
Smaller retailers – mom and pop – operations that are working closer to the margins are relocating from malls with higher rents to the strip centers.
“The national tenants that have cash are being super opportunistic to improve their place in the market and they’re squeezing out the mom and pops,” Killman said. “The national retailers can go, ‘Oh well, I might not be doing big numbers right away but I’ll do big numbers in 18 or 24 months from now.’ The little guys just don’t have that kind of runway.”
Meanwhile, some shopping center owners are rethinking their plans post-COVID and converting former retail space to offices.
“What you’re going to start seeing more and more of is that the secondary and tertiary retail centers are going to be demolished and they’re going to be mixed use, primarily mixed use multi-family product with some residential serving retail,” Killman said.
A Shakeout
Among recent deals, HP Investors based in East Village recently acquired a 19,512 square-foot shopping center in Pacific Beach for nearly $7.8 million.
“We’ve got two or three more things in contract,” said Managing Partner Sumeet Parekh.
Parekh said he’s seeing more demand for retail along the coast with strip shopping centers drawing investors.
“As you look more inland at traditional corridors where there’s a lot of retail, there’s going to be some shakeout and maybe some repositioning,” Parekh said. “The idea of anchored centers, like a mall with a big department store or a big shopping center with a big power box tenant, those are not as appealing as they were before because those big box retailers are not driving as much traffic as they used to.”