Q2 2025 San Diego Retail Market Report
Highlights
- Despite a wave of closures, San Diego’s best retail spaces remain in high demand—over half of the available inventory has sat on the market for more than a year, reflecting growing disconnects in location, layout, and pricing.
- While inflationary pressures, tariff impacts, and weakening consumer spending remain key concerns, a slowdown in construction activity should support a steady backfilling of recent store closures, lowering availability by year-end.
- Properties with mixed-use potential—especially those with secured entitlements—are expected to draw strong buyer interest.
By the Numbers
- Sales Volume: $258M
- Cap Rate: 5.8%
- Market Sale Price Per SF: $398
- Vacancy Rate: 4.4%
- Rent Growth: 1.5%
- Market Asking Rent Per SF: $36.54
- SF Under Construction: 560K
- SF Absorbed: 19.7K
- SF Delivered: (222K)
Demographics
- Unemployment: 4.6%
- Current Population: 3,312,145
- Households: 1,199,544
- Median Household Income: $109,200
Market Performance
The San Diego retail market is adjusting to a wave of store closures rippling across the region. Availability has risen to 5.0% and vacancy to 4.4%, marking the highest levels since 2021. While retailers are finding new opportunities in mid-box spaces within malls and power centers, availability remains limited for prime, well-located, high-quality space, with less than 10% of Class A properties currently on the market.
Rent growth continues to decline, reaching 1.5% in the second quarter, down from 2.4% in the first quarter and a peak of 4.9% in mid-2023. This slowdown reflects cooling inflation and softer consumer spending in a high-cost operating environment. Market participants note that landlords continue to hold leverage, offering minimal concessions and remaining highly selective, particularly in affluent areas like La Jolla, Encinitas, and Del Mar, where rent growth reached 3.5% year-over-year.
Market Asking Rent Per SF and Rent Growth
Source: CoStar Group Inc.
Under Construction Properties
Source: CoStar Group Inc.
San Diego’s retail pipeline is limited, with just 560,000 square feet under construction, representing 0.4% of the total inventory. Most is in Downtown, including 300,000 SF at The Campus at Horton. Outside Downtown, only 60,000 SF is available, mainly small restaurant and storefront spaces. Developers are prioritizing mixed-use or housing projects, as retail rents often don’t justify new construction. Rents would need to rise by 40% for many projects to pencil out. Since 2020, 3 million SF has been demolished, and net supply is down by 1.3 million SF.
Sales
Following historic lows at the end of 2023, sentiment in the second quarter has improved, with many believing the market has moved past its nadir as cap rates, sales activity, and pricing continue to stabilize. Institutional and REIT buyers accounted for 25% of retail property acquisitions over the past year, representing more than half of the selling activity. Fund-level equity remained mainly on the sidelines, allowing private investors to dominate the buy side.
Market participants have noted that cap rates at shopping centers have not increased significantly, despite rising interest rates. More shopping centers have changed hands in recent quarters compared to the previous year. Overall, cap rates have remained relatively steady, ranging between 5.0% and 6.5%, in line with levels seen in early 2022.
Sales Volume and Market Sale Price Per SF
Source: CoStar Group Inc.
Submarket Highlights
