— By Bryan Cunningham of JLL —
The retail sector continues to be a bright spot for commercial real estate in San Diego County. Despite financial headwinds that include interest rates, construction costs, and increases in operating costs like labor and insurance, the resiliency of the consumer has allowed retailers and restaurants to continue to generate substantial sales volumes. Both national and regional retail and restaurant tenants continue to expand, although more cautiously than in years past.
Retail vacancy rates in San Diego continue to hover around 5 percent, with the more desirable coastal communities closer to 3 percent. The lack of new development due to geographical constraints, as well as interest rates and construction costs, is driving expanding tenants to look purely at second-generation retail centers. While the retail tenant pool is somewhat shallow due to bankruptcies by Bed Bath & Beyond, 99 Cents Only, Party City, JoAnn Stores and the like, the lack of new product is keeping well-positioned shopping centers in high demand. Most grocery- and big box-anchored shopping centers are enjoying rents at record levels with very little vacancy.
Retail centers continue to be at the forefront of interest from investors as well. While interest rates have led to an overall increase in cap rates, there continues to be more demand than inventory for sale. This has led to a rather competitive environment for well-positioned and stable retail centers. The challenge continues to be finding willing sellers, many of whom fear they will not be able to find a suitable 1031 exchange property.
Thankfully, concerns surrounding impending tariffs haven’t had a substantial impact on tenant expansion so far. Still, it remains to be seen how further increases in costs may eventually impact consumer demand.
San Diego’s retail environment isn’t challenge-free, but retailers and landlords continue to be bullish for the foreseeable future.
— By Bryan Cunningham, Senior Vice President of Retail, JLL. This article was originally published in the July 2025 issue of Western Real Estate Business.