Phil Lyons Lyons: “The reason the retail works here is that there is an extremely limited supply of retail space within this trade area.”

DEL MAR, CA—Strong demographics consisting of healthy office and residential populations make Del Mar and Carmel Valley unique for retailers, allowing it to command among the highest rents in the county, Cushman & Wakefield managing director Phil Lyons, CCIM, tells GlobeSt.com. The firm’s mid-year retail-market report shows that Del Mar remains the premier target for expanding retailers, keeping rents among the highest in the county at an average of $7.95 per square foot triple-net per month. We spoke with Lyons about the Del Mar submarket and why it commands such high retail rents.

GlobeSt.com: Why is the Del Mar submarket more desirable and more expensive than other coastal San Diego submarkets?

Lyons: There are several reasons. The surrounding demographics of Carmel Valley and Del Mar include 4.5 million square feet of class-A office within 1.7 miles, which gives you a tremendous daytime population. In addition to that, you have a highly educated residential population with a high household income. The average household income in this submarket is $175,00, and it’s within a 5-mile radius. Within 5 miles, you have 72% of the residential population with a bachelor’s degree or higher; the national average is 29%. So, you’ve got a highly educated residential population with high average household income, which gives them tremendous buying power.

It’s the only area within San Diego County that has the blend of the high-income residential with the adjacent office component. You have Carlsbad, which has a large industrial/office base as well, but the incomes aren’t as high. The reason the retail works here is that there is an extremely limited supply of retail space within this trade area.

GlobeSt.com: What type of retailers are drawn to this market?

Lyons: One type of retailer that is drawn to this market are restaurants, which are the largest draw to this area. It goes back to having the opportunity for two strong meals per day. With a strong daytime population, the lunch business very strong, and in addition, they have a very strong dinner business because of the surrounding residential.

Other tenants drawn to this market are lifestyle-type tenants that are in the market and looking for a location within this trade area. Some of them are the fitness users because there are very few fitness options within the trade area and also there are a number of them looking to enter the market. One of the reasons the rents are so high in this area is because of the existing average sales volumes of the current tenants in the trade area. Their sales support the average high rents.

GlobeSt.com: What kind of retail properties are prevalent in this market, and what kind does it need more of?

Lyons: Currently, there are two developments coming on line: Donahue Schriber is redeveloping Del Mar Highlands, which is finalizing an 813-stall parking garage and which will be finished in October. It will also be expanding by an additional 120,000 square feet; it’s 260,000 square feet now, and with the expansion it will be 380,000 square feet for the total shopping center. That expansion will include a new, 25,000-square-foot, state-of-the-art Jimbo’s (a national grocer and current tenant in the center) and a 25,000-square-foot restaurant collective called the SkyDeck, which will include five or six unique restaurants and an outdoor beer garden as well as a retractable roof. You also have Kilroy’s One Paseo, which will include 95,000 square feet of retail. It is also planning 280,000 square feet of class-A office there, in addition to 600 apt. units. One Paseo will have mostly structured parking with very limited surface parking. Land values in this market have increased to such levels that any development and/or redevelopment would be vertical mixed-use with little to no undeveloped parcels within the trade area.