Off-Core Retail Best Opportunities in San Diego

“San Diego County remains one of the most desirable retail investment locations in the Western U.S., and CBRE does not see this changing anytime soon,” Philip D. Voorhees, vice chairman at CBRE National Retail Partners-West, tells GlobeSt.com. Investors are finding the best opportunities in off-core retail centers. Voorhees and his team recently brokered the sale of Vista Village, a 195,009-square-foot retail center, which was a prime example of the types of investments that are in the highest demand among investors. The sales price was not disclosed, but industry sources unrelated to the deal tell GlobeSt.com that the property traded hands for $66.2 million.

“The best opportunities seem to be the just-off-core centers like Vista Village. Its grocery store anchor, Frazier Farms, produces sales volumes exceeding most Whole Foods locations, but the operator is local to San Diego, not Amazon as in the case of Whole Foods,” says Voorhees. “The project’s second anchor, Cinepolis, also produces sales in the top several percent of all theatres nationally on a per-screen basis, though, most institutional investors still consider theatres as non-traditional anchors. Falling just outside the institutional box, CBRE saw strong bidding from high-net-worth private investors, ultimately selling to a family office with a long-term investment strategy that appreciated the strong retail fundamentals of Vista Village and Vista/78 Freeway corridor, and made a great buy at a nice cap rate spread compared to a core center.”

Retail pricing in San Diego is similar to that of other coastal markets along the West Coast, and is largely based on the quality and location of the asset. “In San Diego, as in the West, core cap rates can still be sub-5%, but with the 10-year Treasury yield in the mid-2% range and media negativity about retail tapering but still present, getting into the mid-4% cap rate range on all but the very best centers is not likely,” says Voorhees.

North San Diego County is one of the most popular and emerging retail submarkets in San Diego. This market has seen population growth, because of the availability of housing and affordability, and retailers have followed. “North San Diego County and the 78 Freeway corridor, known by the moniker “Innovate 78” are booming and will take some people by surprise. Housing remains a comparative value in North San Diego County,” says Voorhees. “Lot sizes are larger, and with more businesses locating north, commute times can be short, and access to Southern California’s myriad outdoor activities and amenities are abundant. Keep an eye on Oceanside, Vista, San Marcos and Escondido. Often considered sleepy markets compared to Carlsbad and the coastal cities, momentum is coming their way.”