Slow Leasing Activity Isn’t The End for Retail

San Diego’s retail market fell flat in the first quarter of the year. According to the 1Q18 report from CBRE, San Diego had 10,102 square feet of negative net absorption in the first three months of the year and posted falling lease rates, down $0.08 per square foot to an average asking rent of $2.26. It isn’t all bad news, though. Carrie Bobb, VP at CBRE and a local retail market expert, tells GlobeSt.com that the retail sector is healthy and active—for class-A premier product. In fact, she is signing leases at strong market rents and has an expectation that leasing activity at class-A properties will remain strong through the summer. We sat down with Bobb for an interview to talk about why the slowing leasing activity isn’t a cause for concern and why she believes that the San Diego retail market is set for a good year.

GlobeSt.com: Why do you consider this a healthy retail market, even as leasing activity is slowing?

Carrie Bobb: On the premier properties, there is a lot of activity and we have a lot of people looking. So, there is a lot of activity, but the transactions that are getting done are taking longer. There are a lot of tenants that have their eye on San Diego and are looking at San Diego, but the rate at which deals are getting done is taking longer. Tenants are looking at other markets. When I first started in the business 15 years ago, I saw more tenants wanting to do multiple stores within the county. Today, tenants are saying that they are doing multiple stores across the country, and San Diego is on the short list. There used to be five stores in a market, for example; now there is only one store.

GlobeSt.com: Why is it taking longer to get deals done?

Bobb: There are some really interesting, really cool retail brands that are coming out that are having great success, but they only have so much capital. I think the reason why there is a pause sometimes is because they are trying to figure out where to spend their capital. We know that brick-and-mortar is really important to these online retailers, but they are trying to judge the cost of their capital and see how much bang for their buck they are going to get.

GlobeSt.com: How is this different than the retail patterns that you have seen in the past?

Bobb: Seven to 10 years ago, you were seeing larger brands roll out hundreds of stores across the country. Now, we are seeing a new generation of emerging retail brands that started online and are dipping their toe into the brick-and-mortar world. They are having good success, but they aren’t going to roll out 100 stores across the country in two years. They are going to do 10.

GlobeSt.com: You are focusing on smaller, emerging brands. What is leasing activity like for larger chain brands?

Bobb: The capital that the previous generation of retailers put toward brick and mortar is now going to ominchannel, and you are not seeing as much capital going into brick and mortar.

GlobeSt.com: Leasing activity was slow in the first quarter. What is your outlook for the remainder of the year?

Bobb: There is definitely a big discrepancy between class-A retail product and B- and C-product. There is a big gap between the two. In the class-A product, activity is strong and leasing is strong. I think it looks really good, and while tenants are definitely pushing back on things, I haven’t seen tenants walk away from deals yet. I am seeing tenants that are still being bullish on doing deals, but they are negotiating differently. They are pushing back and being more strategic, and so it is taking longer; however, there are still great deals being done with great brands at strong market rents. Landlords aren’t having to give as many concessions on class-A projects. I think that will continue through the year. In fact, we feel like it is picking up and it is going to carry that way through the summer.