Across Southern California, retail space is shrinking due to demolitions outpacing new construction for three consecutive years, with over three million square feet demolished in San Diego alone since 2020.
This comes as areas in the region continue to become more densely populated.
“We are seeing out-positioned retail such as B or C malls, older department stores, or older centers with poor access and visibility repositioned or redeveloped into mixed-use or multifamily,” Daniel Tyner, managing director of JLL, told GlobeSt.com.
“This is driving value towards existing well-performing retail, especially in infill areas of San Diego.”
Remarkable Market Fundamentals
Orange County and San Diego boast sub-4% vacancy rates (among the nation's lowest), with Orange County seeing 750,000 square feet leased in a single quarter at the end of 2024. The most active retailers expanding today are those in the food, service and grocery sectors, Tyner said.
Southern California recorded $2.6 billion in retail transactions in Q1 2025, representing a 195% year-over-year increase and outpacing the national growth rate.
“We saw the highest investment volume for retail in Q1 2025 since Q1 2022, with $9.8 billion of retail transaction volume nationally closed, which is a 13.1% increase year over year,” according to Tyner.
“We expect retail transaction volume to continue to rise as investor demand from both institutional and private capital remains at very strong levels today.”
Outperforming Investment Returns, Rent Growth
Retail has delivered the highest core investment returns among major property sectors since Q2 2023, attracting additional investment dollars to the sector.
Since 2023, the asset class has fetched an average total return of 9.4% for investors, the highest overall percentage among the four major product types (office, industrial, multifamily and retail).
In Orange County, asking rents are up 4.5% year-over-year, while San Diego has seen 18.4% growth over the past five years. Grocery-anchored centers in affluent areas are commanding premium valuations.
“Leasing activity has pulled back slightly due to low vacancy and limited availability of quality space,” Tyner said. “This, coupled with new construction being very low, is helping drive rents upward because retailers are having to compete with many others for the limited space available. San Diego is a market with minimal new construction, which, in turn, is driving rents upward for quality space.”
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