South San Diego Shopping Center/Retail Market Report

Market Overview

The southern region of San Diego has remained adaptable amid economic uncertainty and rapid changes in consumer spending habits. The submarkets in this region’s market report include East Lake, Chula Vista, Lemon Grove/Spring Valley, Imperial Beach, and National City.

Across its southern markets, net absorption has been positive during San Diego’s past seven quarters, the longest consecutive quarterly streak in the past 10 years. 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 2023. Vacant big-box anchors are providing opportunity for owners to develop into multifamily or mixed-use projects, which in turn will increase occupancy. In 2022, the state of California passed a law to streamline the process, allowing for the redevelopment of vacant or underutilized commercial properties into affordable housing. 2023 is anticipated to see an influx of smaller infill developments, single-tenant properties, or smaller freestanding buildings from Oceanside to Imperial Beach.

Highlights

• Marketing pricing in National City is $342 per square foot
• Imperial Beach saw a 12-month sales volume of $59.4M
• Lemon Grove’s vacancy rate is 3.6%
• Chula Vista contains approximately 3.1 million square feet of neighborhood center space
• Retail rents in Eastlake are 23% above rates from a decade age

Imperial Beach & Lemon Grove Rents| Vacancy| Construction

The retail sectors in Imperial Beach and Lemon Grove both had vacancy rates that were under their five-year average in the past 12 months, with a main contributor being non-occupied neighborhood centers. In Imperial Beach, retail rents today are 35.1 percent higher than there were 10 years ago, running at about $30 per square foot. On the alternative, Lemon Grove offers tenants affordable space with a rent rate of $21 per square foot, a sizable difference from the southern San Diego metro average of $33 per square foot. Additionally, in the coming eight quarters, Lemon Grove has a proposed 32,000 square feet in the pipeline, a large jump from the 8,000 square feet delivered in the most recent two years. Construction in Imperial Beach saw 92,000 square feet of retail space delivered in the past three years with approximately 33 percent of it delivered in the most recent eight quarters. Due to San Diego’s building restrictions, new construction is difficult, but not impossible. During the first quarter of 2023, Imperial Beach’s sale pricing per square foot has remained steady at $398, which is still ahead of pricing across the San Diego MSA. Imperial Beach’s market cap rate is in-line with other south San Diego submarkets at 5.4 percent.

Eastlake & National City Rents | Vacancy | Construction

The vacancy rates in both Eastlake and National City are relatively low, with National City at 3.1 percent and Eastlake at 2.9 percent. As a result of the gap between available supply and high demand, retail rents have increased, primarily in National City, which saw rent growth of 4.6 percent in the past 12 months. Construction in National City is relatively low compared to other regions, but in-line with average levels for the submarket. Sales volume in National City averaged $21.1 million over the past five years, but market cap rates are rising, currently sitting at 5.5 percent. The bulk of business in National City retail is attributed to its moderate discounted rent compared to other submarkets in San Diego, sitting at $26 per square feet. Construction in the submarket of Eastlake is anticipated to slow down in the coming eight quarters, as three large projects were recently delivered in Q3 2022.

Chula Vista Rents | Vacancy | Construction

As the second-largest city in the San Diego MSA, Chula Vista holds high demand, primarily for families. The area’s profile is anticipated to lift in the coming years, thanks to the economic catalyst caused by the Chula Vista Bayfront master plan, which will bring in hotel, condo, retail, and office development. In the past year, rents rose by 3.2 percent, on par with annualized rent growth in the previous three years. Chula Vista holds strong retail appeal for buyers because of its dense consumer base and favorable demographics, contributing to 33 trades completed annually. Sales volume in the past 12 months reached $110 million, a near-record high for the submarket. In the final quarter of 2022, one of the year’s largest shopping center acquisitions was completed, at $3.3 million, for the Southbay Marketplace, landing at $590 per square foot. The center includes a Walmart, Best Buy, and UPS facility. Additionally, a private investor purchased the Broadway Auto Plaza and Car Wash for $4.6 million in Q2 2022. The future of Chula Vista’s retail sector is anticipated to remain static, not straying away from levels seen in the previous five years.

Sales by the Numbers in Past 12 Months

Source: CoStar Group

Chula Vista

Average Vacancy Rate: 5.1%

Average Price Per Square-Foot: $425

Sales Volume: $110M

National City

Average Vacancy Rate: 3.1%

Average Price Per Square-Foot: $324

Sales Volume: $21.2M

Imperial Beach

Average Vacancy Rate: 4.5%

Average Price Per Square-Foot: $598

Sales Volume: $59.4M

Eastlake

Average Vacancy Rate: 2.9%

Average Price Per Square-Foot: $754

Sales Volume: $50M

Lemon Grove/Spring Valley

Average Vacancy Rate: 3.6%

Average Price Per Square-Foot: $284

Sales Volume: $23.5M