What Attracts Retail Investors to San Diego

SAN DIEGO—High barriers-to-entry and a coastal location with little land on which to build are drawing potential investors to this market, Cushman & Wakefield Retail Advisors' director Rob Ippolito tells GlobeSt.com exclusively. We sat down with Ippolito to discuss the retail climate in this market and his view on what investors are seeking here.

GlobeSt.com: What is the sales climate like for San Diego retail properties?

Ippolito: San Diego is one of the top markets in the country from a retail perspective and from an investors' perspective. They want to own on the coast and in markets with high barriers to entry. San Diego on the whole is a place in which they would love to own real estate. Fortunately, it's been a market with very little product coming to market. We work on neighborhood centers, not Fashion Valley-type properties, more of the grocery-anchored centers, and demand is high for these for reasons we all know. It's a great city to live, work and play in. There are also land constraints—we have the ocean, Mexico, Camp Pendleton and the mountains, so there's little land left on which to build. It's a great place to be and to place capital.

GlobeSt.com: How does San Diego compare to other Southern California markets in terms of attractiveness to retail investors?

Ippolito: The top markets here are San Diego, Orange County and prime parts of L.A. These are superior to the Inland Empire, San Bernardino, Riverside and Coachella. It's like our homes—the closer you get to the water, the more valuable the real estate. In every market, there's treat real estate—even if you went to a secondary or tertiary market, we believe there's great real estate. In San Diego, even in some of the secondary trade areas, if you went inland, there's still real estate you'd love to own. The challenge is that sellers aren't selling. They don't want to move their money to the Midwest. It's also a mature market: owners have owned for decades. Orange County is somewhat of a newer market with newer money. Here, families have owned their real estate for decades upon decades. They think, “Why would I sell this? It's irreplaceable.” It leads to very little product changing hands in core or core-plus markets. We don't have the transaction volume because we don't have the supply.

GlobeSt.com: What is capital markets' view of San Diego for retail properties?

Ippolito: Lenders love it. This is a place they want to play in, a place they will probably be very competitive in when pricing because our cap rates will be better than most markets. I'm not a lender, but debt here is more attractive than in the secondary and tertiary markets. They just aren't getting as many at-bats because things aren't trading.