New Retail Delivers Stoke Leasing Activity

If there was one example that retailers are looking for quality space, it is the first quarter retail performance in San Diego. During the first quarter, new retail deliveries drove strong leasing activity as retailers took up the new class-A space. Deliveries totaled 178,642 square feet with the 101-square-foot Millenia Town Center coming to marker nearly fully leased. As a result, retail absorption totaled nearly 115,000 square feet in the first quarter, according to research from CBRE.

“New delivery really added to all of the activity,” Joe Yetter, first VP at CBRE, tells GlobeSt.com. “We had an influx of new availability over the last eight months, and many of those spaces were absorbed in the first quarter. A lot of the activity was condensed into that three months, and it produced a strong quarter.”

The strong absorption was almost entirely driven by the new construction deliveries, which signed leases prior to delivery. “There wasn’t 100,000 square feet or 125,000 square feet of vacant space delivered,” adds Yetter. “A lot of the anchor spaces were delivered occupied, so you get a big push right there. That delivery was almost 100% absorbed when it was delivered. The bulk of it was already leased. That is a key for San Diego.”

This leasing activity really underscored the flight-to-quality trend in retail. Retailers are growing and expanding, but want to be in retail hubs with strong leasing and near population centers. “Quality product in regionally located areas is doing well. There is a divergence of well-located properties in higher-income areas,” adds Yetter. “There are still centers, typically smaller centers, that are struggling to fill some of their final spaces, but even those centers are running at 85% or 90% occupancy.”

In addition to the quality retail space that came to market, Yetter says the leasing activity also underscores the strength of the San Diego market. With a 6.5% vacancy rate, there is a dearth of product that fits the needs of retailers. “The fundamentals in San Diego are strong, and tenants want to be here, but the availability of product is limited, and we are looking at re-tenanting and repurposing product that already exists,” he says. “You are seeing a lot of availability come through in the big box area, but that is being absorbed quickly. We are still seeing a strong impact of tenant influence in San Diego.”

As a result of the limited availability of space, Yetter believes leasing volumes may slow down this year. “We may see a little bit of a slowing because the availability may not be as great as we saw in the first quarter, but from the standpoint of the fundamentals, we are going to see positive activity through the end of the year,” he says.