Commercial real estate investors seek stability in 2025 as tariffs threaten to create short-term market volatility. If you’re focused on San Diego’s retail sector, you may find that stability despite a turbulent first quarter.
A key reason, highlighted in JLL’s first-quarter retail report, is the scarcity of new retail space. By the end of March, only 507,085 square feet were under construction, just 0.4 percent of the total inventory, keeping supply tight and supporting market resilience.
"A lack of supply growth due to sparse retail development alongside the continued demolition of obsolete retail space will help the market maintain current levels of retail vacancy and availability throughout 2025," JLL wrote in a report.
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"This stability is expected to help weather ongoing headwinds such as inflation, a high cost of living and uncertainty from upcoming tariffs, while retailers search for desirable retail space."
That comes after a mixed first quarter for retail in the market. Store closures and bankruptcies forced the vacancy rate up by 20 basis points from the previous three months and put absorption in negative territory at -370,166 square feet. Availability increased by about 585,000 square feet to 4.8 percent, the highest seen since the fourth quarter of 2021. But on the bright side, the rate has remained below five percent since the first quarter of 2022. From a vacancy standpoint, the CBD Downtown San Diego submarket fared the worst, with its 7.5 percent rate.
Meanwhile, rents enjoyed a 2.7 percent year-over-year gain to $36.38 per square foot. The I-15 Corridor saw the strongest growth amongst submarkets, at 3.4 percent.
PetSmart secured the top retail lease in San Diego with its 34,875 square foot renewal at 8657 Villa La Jolla Dr. The pet superstore was followed by T.J. Maxx and Total Wine, which took new leases for 23,000 and 20,173 square feet, respectively.
Even with tight availability expected, another trend to look for: the store closures will offer retailers eyeing expansions an opportunity to grow their footprint, according to JLL.
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