South Bay San Diego Retail Market Report

Market Overview

South Bay San Diego is known for its vibrant and diverse retail market. Situated along the beautiful Southern California coastline, this region offers an array of shopping options catering to various tastes and preferences. The market has remained stable amid economic uncertainty and rapid changes in consumer spending habits. The submarkets in this region’s market report include Chula Vista/Bonita, Imperial Beach/Otay Mesa, and National City.

Occupancy has quickly recovered, given the strength of demand in the area, which could lead to landlords, particularly in high-end or well-located spaces, increasing pricing power throughout H2 2023. Vacant big-box anchors are providing opportunities for owners to develop into multifamily or mixed-use projects, which in turn will increase occupancy.

Highlights

• In the Chula Vista/Bonita submarket, the average market rents fall in the middle of San Diego’s submarkets at approximately $34/SF.
• Over the past 12 months, the vacancy rate in the Imperial Beach/Otay Mesa submarket has experienced a slight decrease of -0.2%, settling at 4.9%.
• National City has absorbed about 17,000 SF in the last 12 months but has delivered nothing.

Rents | Vacancy | Construction | Sales

Chula Vista/Bonita Submarket

Chula Vista, the second-largest city in San Diego County that also encompasses the Bonita submarket, is home to a vast retail market with numerous popular corridors, including Third Avenue and Broadway. The city’s retail landscape extends expansively, offering various shopping opportunities for residents and visitors alike. Rents in the submarket are up 7.0% year-over-year compared to the five-year average of 3.3%, according to CoStar Group. At the start of 2023, Bed Bath & Beyond decided to close its 50,000-square-foot store at Terra Nova Plaza. As a result of this closure, the absorption rate turned negative during the first quarter of 2023, marking the first instance of negative absorption since the beginning of 2022.

The submarket’s appeal to investors lies in its favorable demographics and dense consumer base. On average, transactional sales prices have hovered around $360 per square foot, while transactional cap rates have typically ranged from 5.0% to 6.0%. The 12-month sales volume stands at $44.1 million.

Imperial Beach/Otay Mesa Submarket

The Imperial Beach submarket has witnessed the emergence of various new restaurants and retailers, coinciding with enhancements made to the business district. These improvements include storefront renovations, the addition of bike lanes, and landscaping, all of which aim to accentuate the gateway to the beach from I-5 and Otay Mesa, creating a more pedestrian friendly environment. At 4.9%, the vacancy rate has experienced a year-over-year decrease of 0.2%, trending close to its lowest point in more than five years. On the other hand, the availability rate has slightly increased from its lowest level, standing at 6.4%. Over the past four quarters, leasing activity has moderated, which has led to approximately 270,000 square feet of available space in the submarket, with minimal big box inventory currently available. Rent prices have increased by 4.7% when comparing year-over-year data, surpassing the five-year average of 3.4%.

Since H2 2022, deal flow has slowed due to the rapid rise in interest rates, resulting in a phase of pricing discovery. Despite this, private local investors have remained actively engaged in the submarket. National investors own approximately 60% of the total asset values within the submarket. The 12-month sales volume is $48.1M.

National City Submarket

The National City retail submarket has a vacancy rate of 3.1%, representing a decline of 0.5% over the last 12 months. Within this period, 17,000 square feet of space have been absorbed, and no new properties have been added to the market. When considering sublease space, the total availability rate amounts to 4.0% of all available inventory. Regarding subtypes, general retail is the largest category, accounting for 2.0 million square feet within this submarket. Rents are approximately $27.00 per square foot, reflecting a notable increase of 6.3% compared to one year ago.

Over the last 12 months, there have been a total of 11 sales in the submarket. On average, these sales have been valued at $310 per square foot, while the overall estimated value of the entire submarket stands at $355 per square foot. The 12-month sales volume is $15.6M.