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Demand for retail space continued to be negative for the fifth consecutive quarter. There has been nearly one and half million square feet of tenant vacancies during the first nine months of 2009.
The Q3 countywide total retail vacancy rate in shopping centers and freestanding retail over 2,500 square feet, increased to 5.5% compared to 5.3% in the previous quarter and 3.8% one year ago. About 7.0 million square feet currently sits vacant. Direct vacancy measured 5.1%, while sublease vacancy remained unchanged at 0.4%.
San Diego’s retail vacancy rate is better the most areas of the country and the nation as a whole. Vacancy for strip, neighborhood, and community centers in San Diego stands at 7.1% compared to 10.6% for the U.S. 36 out of the 42 major markets in the U.S. have higher vacancy than San Diego.
Net absorption totaled a negative 261,444 square feet in Q3. In Q2, three submarkets had over 100,000 square feet of negative net absorption whereas this quarter, no submarket exceeded 70,000 square feet of negative net absorption. Most submarkets continued to have negative demand at much smaller magnitude compared to the last two quarters.
New construction activity has slowed with about 453,000 square feet completed in the first nine months of 2009 (approximately 43,000 square feet completed in Q3). An additional 570,000 square feet is under construction. Most of the 1.7 million square feet of proposed space will remain undeveloped for at least a couple of years while the market moves toward recovery and the best existing space is absorbed.
Although there are signs of increased consumer confidence and employment has begun to pick up, it is reasonable to expect that San Diego’s full recovery is a few years away. Rents will be competitive in well into 2010. Sales volume will likely remain low but potentially pick up in the latter half of 2010.
Contact Chris Reutz at 858.677.5385 for more information.
  San Diego Knowledge Report - Retail - 2009Q3.pdf
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