Research & Market Insights

California Self-Storage Market Report 2026

California’s self-storage market is navigating a period of tempered performance as advertised rates face downward pressure from shifting migration patterns and persistent supply in select metros. While the state has historically benefited from high-density living and smaller than average housing units, recent data reveals a cooling trend, with year-over-year rate growth for main unit types turning negative in major hubs like San Diego, San Francisco, and Los Angeles. Despite this broader pullback, certain markets show signs of stabilization. For instance, San Jose maintained a flat 0.0% month-over-month rate change in January 2026, supported by one of the lowest new supply pipelines in the country at just 1.0% of existing inventory. Nationally, climate-controlled units continue to outperform non-climate-controlled counterparts, a trend mirrored in California where the performance gap is helping to absorb newer deliveries. Los Angeles The Los Angeles market is characterized by constrained supply and a significant pullback in sales activity following major portfolio deals in previous years. As of January 2026, the under construction pipeline stands at 2.6% of existing inventory, a slight decrease from the 2.8% recorded in December 2025. While the market recorded a minor 0.4% year-over-year decline in advertised rates, it remains one of the highestpriced regions in the country with an average street rate of $27.18. The lack of buildable space in coastal urban areas continues to drive long-term fundamentals. Rental Rates Source: Yardi Matrix, Real Capital Analytics 10 x 10 Average Street Rate $27.22 Month-Over-Month Change -0.10% Year-Over-Year Change -0.40% Under Construction by Percentage of Inventory 2.80% 12-Month Sales Volume $485M Los Angeles Sales Volume Source: Real Capital Analytics Inland Empire Emerging as a leader for population growth in Southern California, the Inland Empire benefits from more favorable housing supply-demand dynamics compared to neighboring Los Angeles. The market remains relatively stable, posting a marginal 0.2% year-over-year rent decrease and a small 0.1% month-over-month rate increase in January 2026. With an under construction pipeline representing only 1.7% of inventory, the metro maintains a healthy balance between new deliveries and household formation. Rental Rates Source: Yardi Matrix, Real Capital Analytics 10 x 10 Average Street Rate $17.28 Month-Over-Month Change 0.10% Year-Over-Year Change -0.20% Under Construction by Percentage of Inventory 1.70% 12-Month Sales Volume $146M Inland Empire Sales Volume Source: Riverside & San Bernadino | Real Capital Analytics San Diego San Diego’s self-storage demand is bolstered by household formation that has historically outpaced the state average. The market is currently navigating a 1.3% year-over-year decline in advertised rates as it absorbs existing inventory. However, the new supply pipeline remains disciplined, with projects under construction accounting for only 1.6% of stock. A high concentration of Millennials and Gen Z in the metro suggests that future family creation will continue to act as a primary catalyst for storage utilization. Rental Rates Source: Yardi Matrix, Real Capital Analytics 10 x 10 Average Street Rate $23.52 Month-Over-Month Change 0.00% Year-Over-Year Change -1.30% Under Construction by Percentage of Inventory 1.60% 12-Month Sales Volume $67M San Diego Sales Volume Bay Area The Bay Area continues to see some of the tightest self-storage space-per-person ratios in the state. High retail sales per capita and exceptionally small average apartment sizes necessitate the use of off-site storage for consumer goods. In January 2026, the market showed stability with 0.0% month-over-month change in street rates, even as it faced a 0.7% year-over-year decline. Development remains highly restricted, with only 1.0% of existing inventory currently under construction. Rental Rates Source: Yardi Matrix, Real Capital Analytics 10 x 10 Average Street Rate $26.03 Month-Over-Month Change 0.00% Year-Over-Year Change -0.70% Under Construction by Percentage of Inventory 1.00% 12-Month Sales Volume $403M Bay Area Sales Volume

Shane Avera

Vice President

4/7/26

New Construction Continues to Outperform the Resale Home Market

New home sales slowed nationally in October as the market entered its typical seasonal cooldown and affordability pressures continued to limit buyer activity. Builders sold new homes at an annualized pace of just over 700,000 units during the month, down from late-summer levels. Even with that monthly slowdown, sales remained approximately 13% higher than a year earlier, underscoring how new construction continues to outperform the slower recovery in the resale market. Real home prices increased just 1.8% on average in 2025, a pace that fell below inflation and helped prevent price growth from becoming a larger affordability obstacle. Looking ahead, market forecasts point to a potential rebound in home sales in 2026, with volumes expected to rise by roughly 7% as mortgage rates move closer to 6% and overall conditions normalize. Why New Construction Is Carrying the Market Despite modest price growth, affordability remains a central challenge. Rising non-mortgage costs have placed growing pressure on household budgets, with expenses such as insurance, utilities, and property taxes increasing by roughly 30% in 2025. Insurance premiums alone are expected to climb another 8% in 2026, once again outpacing inflation and limiting any relief created by slower home price appreciation. In this environment, new construction has continued to play a critical role in supplying available inventory. Limited resale supply across much of the country has kept builders focused on incentives rather than higher prices. Mortgage rate buydowns and closing cost assistance have helped support absorption and sustain sales activity, even as many buyers remain cautious. Southern California Follows National Trend Southern California followed a similar trajectory in October. Across the six-county region, Los Angeles, Orange, Riverside, San Bernardino, San Diego, and Ventura, buyers completed approximately 14,600 home sales during the month, reflecting a measured and seasonally typical pace. That volume aligns with historical norms for Southern California at this point in the year. The California Association of Realtors reported that regional home sales rose about 5.6% year-over-year in October, marking a modest improvement from last year despite persistent affordability constraints. Price growth in much of the state has been muted but relatively stable, with statewide median prices only slightly lower or flat compared to a year ago even as some Southern California counties have seen small gains; overall, pricing hasn’t collapsed but hasn’t surged either. Looking ahead, C.A.R.’s 2026 forecast anticipates modest price growth, with the California median home price projected to rise about 3.6% next year, suggesting a gradual upward trend in values alongside improving sales activity. New construction continued to support overall activity, particularly as resale listings remained scarce. Buyers showed stronger interest in more affordable inland markets, while higher-priced coastal submarkets experienced longer marketing times. Entry-level and attached homes (i.e. Townhomes) attracted the most attention as buyers prioritized manageable monthly payments over square footage. Looking Ahead As Southern California enters the heart of the winter season, new home sales continue to hold at a steady but subdued pace. Affordability constraints are keeping builder strategies focused on incentives and targeted product offerings as buyers wait for clearer improvement in borrowing conditions. Lower mortgage rates could still bring many sidelined shoppers back into the market, particularly first-time buyers, according to a recent BPG Inspections survey. Nearly two-thirds of first-time buyers said they would actively begin house hunting if mortgage rates fall to what they consider an affordable level. Respondents identified 4.86% as the highest manageable rate for a 30-year fixed mortgage. First-time buyer preferences point to a strong desire for flexibility and control. About one-third (33%) said they prefer new construction, while 29% expressed interest in fixer-uppers. Another 16% favored flipped homes, and 22% remained open to other housing options. Affordability continues to stand as the primary barrier to homeownership. More than eight in ten first-time buyers (83%) report that high housing costs have prevented them from purchasing a home, while fewer than one in ten say they prefer renting, underscoring that demand for ownership remains strong, but is constrained by pricing rather than preference.

Stewart I. Weston

Executive Vice President

3/13/26

Sippin’ on California’s Coffee Market

Coffee shops have emerged as a “third place,” neither home nor work, where customers have the option to grab a drink, or use the location to relax, work, and enjoy their free time. Recent National Coffee Association data shows that in 2025, 66% of American adults drink coffee daily, and consume an average of three cups per day. Specialty coffee consumption has reached a 14-year high, with 46% of American adults having specialty coffee in the past day, surpassing traditional coffee consumption. As demand for premium coffee experiences intensified, national and regional operators are finding room to thrive, even in saturated markets already dominated by major chains, like California. Coffee tenants continue to expand rapidly across the state, with Southern California noting increased developments from coffee retailers. These tenants are actively seeking spaces that range from 1,000 to 4,000 square feet, attracting national brands and local operators. For shopping center landlords, securing a quality coffee tenant can increase traffic and enhance the value of their center. Demographics and location are top priorities for coffee tenants with signalized intersections, strong car counts, and pedestrian inflows being factors that improve a coffee shop’s success. Outparcels or pads remain highly desirable, offering convenience and visibility. Drive-thru locations, end caps, and even select inline spaces are increasingly in demand as operators look to capture center traffic and attract more consumers. While shopping pads and drive-thru locations are favorable, mixed-use spaces also prove beneficial for coffee shops. The ground-floor component creates vibrant street-level activity, and the mix with office and/or multifamily guarantees demand. For coffee shop operators, securing space within a mixed-use property allows for access to residents, office workers, and everyday consumers, guaranteeing built-in customers and traffic upon opening. National Coffee Shop Monthly Visits Source: Placer.AI, January 2019-October 2025 National Tenant Movement in SoCal Footprint sizes for coffee shops across the region vary widely depending on format. Small kiosk/drive-thru concepts note locations under 1,000 square feet, while freestanding locations can reach up to 4,000 square feet. Starbucks, in particular, leads national coffee tenants with the most locations in California. The coffee giant has a strong focus on Southern California, with 155 locations in Los Angeles, 131 stores in San Diego, and over 100 across Orange County. In order to maintain its positive performance in the region, Starbucks has begun new initiatives across its stores, including renovating locations to align with the Back to Starbucks plan. CEO Brian Niccol launched the initiative in September 2024 to bring more customers back to stores across the country. New features of the plan include lounge seating, warmer lighting, and reintroducing ceramic mugs for in-store orders. The goal of this plan is to create a community feel within their locations. A new site with these features has already opened in Los Angeles at the intersection of Sunset and Palisades Village. Dutch Bros has become one of the fastest-growing national coffee chains across Southern California. The tenant first began operations in 2022 when it opened a location in San Diego County. Since then, it has spread to cities like Barstow, Apple Valley, Victorville, Baldwin Park, and Palmdale. Dutch Bros is planning its move in the Los Angeles metro, with a store under construction near the University of Southern California campus. The location will be similar to its other stores featuring a walk-up window, and it is expected for completion by year-end 2025. Other new sites for Dutch Bros across Southern California include Carson and Temecula, with both shops already approved for construction. Starbucks Dominates National Tenants Across California Source: Placer.AI A Cup of Local Brew Regional coffee shops attract consumers seeking high-quality products, with goods like specialty beverages or artisan-roasted beans. Younger consumers, like Gen Z, often drive visits as they are willing to pay more for premium, trending goods. These locations offer a unique setting that reflects the local population, attracting consumers that seek an authentic and community-focused experience. While national operators offer a convenient visit, regional operators create competition by prioritizing quality, community, and exclusive experiences. California is home to the greatest number of coffee shops across the country, with local tenants playing a significant role in the state’s coffee performance. Regional coffee tenants most often lease 800- to 1,500-square-foot spaces with in-line or end-cap formats, as seen with regional operator Better Buzz. The coffee chain, which started as a coffee cart in San Diego, has become a staple in Southern California. Most of its locations are found in San Diego and Orange County, reaching as north as Fullerton. Upon its success in Southern California, the company has also expanded to Nevada and Arizona, with its first out-of-state store located in Phoenix. Better Buzz has around 40 locations across the three states, and it plans to double its size in the next few years. Regional tenants that feature Vietnamese coffee are also aiding coffee shop activity. The nation’s coffee began to grow internationally in the 1990s when it became one of the world’s largest coffee producers. Since then, it has maintained its popularity for creating a unique coffee culture for consumers in the Southern California market. Trung Nguyen Legend Café, originally from Vietnam, began U.S. operations in 2023 with its Westminster location. The company is still growing across Southern California, with Matthews™ recently securing a 2,700-square-foot space for them in Huntington Beach. The coffee shop sought this location because of the end cap, visibility, patio and large seating area, as well as the community impact. Blk Dot Coffee has also expanded the presence of Vietnamese coffee in Southern California. The company is a family-run business with a focus on providing traditional Vietnamese coffee, as well as some food items. Its first location opened at the Orange County Google offices in 2015, and has had a strong presence across the county ever since. Locations range from areas like Irvine, Newport Coast, Fountain Valley, and Long Beach, with many of its stores placed in shopping centers to take advantage of high foot traffic levels. Tierra Mia Coffee opened its first location in 2008, and has since expanded its reach to both Los Angeles and Orange counties. Known for roasting its coffee and baking their pastries in store, as well as serving Latin specialty drinks and unique latte art, the company has now grown to 20 stores. Roasting Robust Results The national coffee market is projected for continued growth as consumers seek coffee shops for a third place experience. The U.S. coffee market size was estimated at $47.8 billion in 2024, and is forecast to grow at a CAGR of 9.5% to 2030. By providing free Wi-Fi, coffee shops continue to attract work-from-home employees, as well as create an environment for other consumers to relax and socialize. Further growth across the sector will be aided by consumers seeking more unique flavors and high-quality products. This movement is advantageous for local operators as they can adjust menus to provide enticing options not found at national brands. To stay competitive, national tenants are prioritizing loyalty programs and drive- thru convenience, while local tenants leverage community connection and handcrafted goods to maintain performance levels.

Matthew Sundberg

Vice President & Associate Director

3/11/26

Top 10 Multifamily Markets in 2026

New York, NY By the Numbers 2025 | Source: Matthews™ Research Sales Volume: $8.3B Average Price Per Unit: $404.5K Cap Rate: 5.3% Vacancy Rate: 3.0% Annual Rent Growth: 7.0% Annual Net Absorption: 14,580 Units New York’s multifamily sector remains one of the tightest and most resilient leasing markets in the country, supported by strong fundamentals and sustained investor interest. Manhattan continues to assert itself as the premium rental market with effective rents surpassing pre-pandemic highs, while Brooklyn has evolved into a primary economic hub, attracting a younger, renter base that’s driving competition across the borough. Year-to-date total sales volume in New York has reached $8.3 billion, paired with an average price per units of $404, 500, reflecting continued confidence in the market despite elevated borrowing costs. Performance remains competitive with a 5.3% cap rate, underscoring New York’s status as a high-barrier metro. While investors have retreated from Manhattan’s most expensive core submarkets, capital is aggressively targeting high-yield opportunities in areas like Harlem and the Financial District, where redevelopment potential and discounted pricing remain compelling. The borough’s cap rates have stabilized between 6.0% and 6.3%, with per-unit pricing rising for six consecutive quarters, signaling the early stages of recovery. Brooklyn has also seen sales accelerate, with institutions accounting for a growing share of activity. Cap rates have compressed modestly, now aligning with Manhattan in the low 6%- range, while pricing remains elevated for waterfront assets. Operating conditions continue to outperform national benchmarks. The market’s 3.0% vacancy rate is well below the U.S. average, driven by structural undersupply, muted construction, and stable in-migration. Manhattan’s limited construction is hampered by construction costs and regulatory hurdles, causing a sharp drop in building filings. This is keeping the borough’s vacancy rate low, and is expected to fall to roughly 2.4% by 2026. Brooklyn, despite experiencing the highest level of completions in more than a decade, maintains one of the lowest vacancy rates nationally at 2%, supported by demographic tailwinds and demand for larger floor plans. These dynamics have propelled strong rent momentum market wide. Annual growth sits at 7.0%, with Manhattan expected to post gains near 6.8% by year-end 2025 and Brooklyn recording 6.7% growth alongside a cumulative 44% rent increase since 2019. Demand remains healthy across all boroughs, evidenced by 14,850 units of annual net absorption, supported by a strengthening labor market. New York City is projected to add 38,000 jobs in 2025, and in-person office attendance (particularly in Manhattan) has surged to 95% of its 2019 levels. The workers returning to office is amplifying demand for centrally located, premium rental housing. Looking ahead to 2026, slow entitlement processes, ongoing supply constraints, and durable demand drivers will continue to support low vacancy and positive rent growth. Manhattan’s long-term development opportunities increasingly lie in conversions, value-add repositioning and niche submarket plays, while Brooklyn’s most compelling strategies focus on delivering larger, family-sized units through reconfigurations of existing small stock. The recent election of Mayor Zohran Mamdani introduces increased attention around affordability and tenant protection policies, including the discussion of a rent freeze for stabilized units. While these proposals may influence sentiment at the margins, the market’s global prominence, economic depth continue to anchor its long-term performance. Maintaining quality of life is Manhattan is a demand driver that has been top of mind for developers and investors alike. Police Commissioner Jessica Tisch has agreed to remain in her role, and under her leadership the NYPD recently reported the fewest shooting incidents for the month of October since safety and private sector investment will be key in ensuring New York City’s prosperity for the years to come.” -Brock Emmetsberger, Executive Vice President Brooklyn, Manhattan, & U.S. Rent Growth Source: Matthews™ Research, CoStar Group, Inc. New York Vacancies Remain Well Below U.S. Norms Source: Matthews™ Research, CoStar Group, Inc. Bay Area: San Francisco & San Jose By the Numbers 2025 | Source: Matthews™ Research San Francisco Sales Volume: $8.3B Average Price Per Unit: $404.5K Cap Rate: 5.3% Vacancy Rate: 3.0% Annual Rent Growth: 7.0% Annual Net Absorption: 14,580 Units San Jose Sales Volume: $8.3B Average Price Per Unit: $404.5K Cap Rate: 5.3% Vacancy Rate: 3.0% Annual Rent Growth: 7.0% Annual Net Absorption: 14,580 Units The San Francisco Bay Area is entering 2026 on new footing, reasserting itself as one of the nation’s most dynamic multifamily markets. Supported by a powerful combination of tech-led job creation, population stabilization, and strengthening investor confidence, demand has reinvigorated investment. Across the region, demand is being reshaped by the rapid expansion of the AI ecosystem. San Francisco is experiencing a sharper and more immediate surge in activity driven by AI firms expanding office footprints and accelerating hiring. In comparison, San Jose’s performance is tied to Silicon Valley’s long-standing economic gravity and a renter base shaped by decades of exceptional wage growth and high barriers to homeownership. AI companies (databricks, openAI, and anthropic being a few of the many) have pushed office vacancy way down and helped increase multifamily rent growth. [In addition,] San Francisco’s unemployment rate compared to the rest of California, was around 3.5% [with] California’s above 5%. This has helped bring private and institutional buyers back to the market. – Jack Markey, Associate San Francisco posted $2.3 billion in annual sales volume, with assets trading at an average of $428,000 per unit and cap rates compressing to 4.5%, signaling investors’ increasing willingness to price in near-term rent acceleration tied to AI-driven demand. San Jose recorded $1.9 billion in sales, with average pricing at $488,000 per unit and slightly higher cap rates at 4.6%. While San Francisco is seeing faster cap rate compression amid strong bidding for well-located product, San Jose continues to attract capital seeking stability, income durability, and access to one of the wealthiest and most credit-stable renter populations in the nation. Across both metros, the investment narrative is improving, but San Francisco’s upside thesis is more growth-oriented, while San Jose’s is grounded in consistency and long-term absorption. Operating conditions are tightening throughout the Bay Area. San Francisco’s vacancy rate fell to 3.3% and annual rent growth reached 5.3%. This strength is supported by renewed population gains, limited new supply, and an inflow of high-income workers in the AI sector. The market’s acute supply-demand imbalance is highlighted by the absorption of 4,094 units outpaced deliveries. San Jose posted slightly higher vacancy at 3.6%, paired with 3.1% annual rent growth and a similar 4,191 units of net absorption. This is one of the strongest demand performances the metro has recorded in the past decade. Supply levels remain constrained across both metros, though San Francisco faces the most severe development limitations. Rising construction costs, zoning restrictions, and protracted entitlement timelines continue to suppress new starts, allowing demand to outpace completions and strengthening landlords’ pricing power. San Jose’s supply environment, while also tight, is less structurally constrained. The metro’s pressure comes from decades of undersupply relative to household formation and for-sale housing costs that consistently rank among the highest in the country. With mortgage rates near 7% and home prices continuing to climb, San Jose now has the nation’s largest rent-versus-own affordability gap, pushing new households directly into the renter pool and reinforcing long-term multifamily stability. Looking ahead to 2026, the AI sector plays a pivotal role in reshaping the market’s trajectory and both cities are well positioned. The expanding cluster of major AI and tech firms has fueled renewed office activity, contributed to a 1.3% uptick in population, and supported what is shaping up to be the strongest demand cycle since before the pandemic. Constrained supply, tech-driven job creation, and mounting investor interest positions the Bay Area as one of the top multifamily markets to watch, particularly for those looking to capitalize on the momentum of the burgeoning AI economy. Bay Area Rent Growth Leads California Source: Matthews™ Research, CoStar Group, Inc. Boston, MA By the Numbers 2025 | Source: Matthews™ Research Sales Volume: $3.1B Average Price Per Unit: $499K Cap Rate: 5.1% Vacancy Rate: 3.8% Annual Rent Growth: 0.2% Annual Net Absorption: 5,982 Units The Boston MSA enters 2026 as one of the most stable and opportunity-rich multifamily markets in the country, supported by strong population gains, a deep reservoir of high-earning renters, and a rapidly expanding tech, life sciences, and employment base Unlike many Sunbelt metros that are still absorbing a surge of new construction, Boston’s fundamentals benefit from a more measured supply pipeline, despite strong employment pull. Major employers, including Meta, Google, and Amazon, continue to scale engineering and R&D operations across the market, attracting high-earning renters and reinforcing the metro’s appeal as a premier innovation hub. This strength helped drive $3.1B in sales volume, average pricing of $499,000 per unit, which is nearly double the U.S. average, and a market cap rate of 5.1%. 34% of transaction volume over the previous five years involved public and institutional buyers. Within the same period, private capital accounted for 65% of seller volume and nearly half of buy-side volume. The delta between the average sale price of $13.6 million and trailing four quarters’ median sale price of $2.4 million, suggests that while public and institutional players continue to be involved in a smaller amount of large deals, smaller private buyers account for the majority of deal activity. Across the market, leasing has remained steady with annual net absorption reaching 5,982 units. The vacancy rate is about 200 basis points below the national rate of 8.4%, at 6.5%. These conditions indicate that new and existing renters are quickly filling available units, and underscores the structural demand. At the same time, Boston’s renter preferences are shifting decisively toward higher-tier apartments. While rent growth has decreased from 2022 double-digit, rents remain among the highest nationally and growth exceeds the U.S. average. Class A units maintain the highest rents and continue to post meaningful absorption. This trend, combined with steady investor activity and a development pipeline increasingly concentrated in desirable urban nodes, reinforces the market’s long-term stability. With a highly educated, growing population and sustained demand from the region’s thriving tech and innovation sectors, Boston is poised for tightening fundamentals and improved rent performance in 2026. While political attention around housing affordability remains heightened, with discussions around rent stabilization drawing close scrutiny, market conditions remain fundamentally sound. Renter Appetite for Class A Apartments is Evident, Outpacing Class B Absorption Source: Matthews™ Research, CoStar Group, Inc. Boston’s Net Population Sees Spike in the Last Year Source: Matthews™ Research, CoStar Group, Inc. Chicago, IL By the Numbers 2025 | Source: Matthews™ Research Sales Volume: $3.1B Average Price Per Unit: $499K Cap Rate: 5.1% Vacancy Rate: 3.8% Annual Rent Growth: 0.2% Annual Net Absorption: 5,982 Units Chicago’s multifamily market enters 2026 as one of the most undersupplied and demand-driven major metros in the country. Demand continues to outpace new supply, with the region absorbing roughly 7,500 units in 2025, well above the 4,800 units delivered in the same period, pushing vacancy down to 3.5%. This supply imbalance is expected to intensify in 2026 as only 10,000 units remain under construction, representing just 1.8% of total inventory, far below the national average and the market’s long-term average. With scheduled deliveries projected to fall to some of the lowest levels since 2012, Chicago is set for continued vacancy compression and rent gains. Rents are accelerating across every submarket and asset class. Annual rent growth reached 3.7% market-wide, with premium Class A properties posting a stronger 4.0% increase as renters demonstrate a pronounced “flight to quality” in a constrained supply environment. Demand remains strong in Downtown Chicago and the North Lakefront, accounting for more than one-third of total absorption and continuing to benefit from their concentration of employment, transit access, and amenity-rich neighborhoods. Investment activity mirrors this optimism: sales volume has risen sharply to $3.8B in 2025, cap rates average 6.7%, and premier assets often trade at even tighter yields as investors price in ongoing rent growth and stable occupancy. Major employers across finance, consulting, healthcare, manufacturing, and life sciences continue to deepen their presence, while transformative projects such as the Illinois Quantum and Microelectronic Park further elevate Chicago’s position as a tech and research hub. This enhances the market’s ability to attract and retain a high-earning renter pool. Together, these forces of a high-income renter pool, strong absorption, and limited new supply, position Chicago as one of the nation’s top-performing multifamily markets heading into 2026. Chicago Leads the Nation in Apartments Rent Growth Source: Matthews™ Research, CoStar Group, Inc. Deliveries Decreased Significantly Over the Last 12 Months Source: Matthews™ Research, CoStar Group, Inc. Miami, FL By the Numbers 2025 | Source: Matthews™ Research Sales Volume: $1.7B Average Price Per Unit: $330K Cap Rate: 5.3% Vacancy Rate: 4.3% Annual Rent Growth: 0.7% Annual Net Absorption: 5,846 Units Miami enters 2026 as one of the nation’s most demographically advantaged multifamily markets, supported by strong fundamentals and one of the deepest in-migration pipelines in the country. The region continues to attract high-income households, young professionals, and remote workers drawn to Miami’s tax advantages, lifestyle appeal, and growing corporate presence. More recently, high-income policy refugees are anticipated to leave New York and choose Florida markets like Palm Beach and Miami. This adds a new layer of durable, upper-income demand that will help solidify the rent floor and support the next phase of growth. These powerful demographic forces helped fuel 5,846 units of net absorption in 2025, keeping vacancy at a healthy 4.3% despite substantial new deliveries across the metro. While rent growth moderated to 0.7% in 2025 due to the heavy wave of new deliveries, Miami is expected to regain momentum in 2026 as supply pressure eases and demand continues to deepen. Much of the elevated pipeline is beginning to taper, setting the stage for improved performance as thousands of new units lease up and population inflows remain robust. Investor activity remains strong, with $1.7B in sales volume, an average price per unit of $330,000, and cap rates holding at 5.3%, signaling sustained confidence in Miami’s long-term growth trajectory. Miami’s expanding finance, technology, hospitality, and healthcare sectors, reinforced by ongoing corporate relocations and international investment, continue to diversify the local economy and strengthen the renter base. With absorption outpacing expectations, vacancy tightening, and supply set to normalize, Miami enters 2026 with the foundation for renewed rent growth and sustained investor interest, placing it firmly among the top multifamily markets to watch. Asking Rents in Miami Trend Higher than the U.S. Average Source: Matthews™ Research, CoStar Group, Inc. The Sunshine State is the No. 1 Destination for Migrating New Yorkers Source: Matthews™ Research, MovingPlace Atlanta, GA By the Numbers 2025 | Source: Matthews™ Research Sales Volume: $16.5B Average Price Per Unit: $174.5K Cap Rate: 5.2% Vacancy Rate: 6% Annual Rent Growth: 0.6% Annual Net Absorption: 20,576 Units Atlanta enters 2026 from a position of emerging strength as the market begins to stabilize after several years of historically elevated supply. Despite vacancy averaging 6% in 2025 and rent growth holding at a modest 0.6%, the metro posted a substantial 20,576 units of net absorption, signaling renewed momentum as demand once again outpaced new deliveries. Investor confidence remained firmly intact, with $16.5B in multifamily sales, an average price per unit of $174,500, and cap rates at a competitive 5.2%, underscoring long-term conviction in the region’s demographic and economic fundamentals. The market’s near-term challenges, primarily elevated vacancy and competitive lease-up conditions, are beginning to recede. The development pipeline is contracting sharply, with expected 2025 deliveries down roughly 40% from the prior year’s peak, marking a decisive shift toward more balanced supply conditions. This moderation is pivotal: for the first time since 2021, absorption is poised to consistently keep pace with, and potentially exceed, new supply. Demand drivers remain firmly entrenched. Metro Atlanta continues to outperform in population and household growth, supported by a broad-based employment ecosystem spanning logistics, education and health services, technology, and professional services. Even as certain office-using sectors cooled in 2025, the region’s overall economic profile remained resilient, ensuring a steady inflow of renters seeking relative affordability and proximity to expanding job centers. Growth nodes such as Midtown, West Midtown, and North Fulton continue to benefit from ongoing corporate relocations and high-skill employment announcements. Atlanta’s strong absorption, moderating construction pipeline, and durable economic base position the metro for a meaningful inflection in 2026. We’re optimistic that we will see an increase in transactional velocity in 2026 – Connor Kerns & Austin Graham, First Vice Presidents & Associate Directors With rent growth expected to return to positive territory by mid-year and investor appetite remaining elevated, Atlanta stands out as one of the nation’s most compelling multifamily markets heading into the next cycle. Atlanta Multifamily Demand Nears Pandemic-Era Peak Source: Matthews™ Research, CoStar Group, Inc. Atlanta Multifamily Transaction Volume Source: Matthews™ Research CoStar Group, Inc. Washington, D.C. By the Numbers 2025 | Source: Matthews™ Research Sales Volume: $4.4B Average Price Per Unit: $313K Cap Rate: 5.6% Vacancy Rate: 4.1% Annual Rent Growth: 0.8% Annual Net Absorption: 7,709 Units Washington, D.C. enters 2026 with strengthening multifamily fundamentals supported by one of the most stable, recession-resistant demand bases in the country. The region experienced a temporary pause in rent growth in 2025 due to elevated deliveries, yet leasing performance remained exceptionally resilient. The market absorbed a substantial 7,709 units over the last year, pushing vacancy down to 4.1% and reaffirming the region’s depth and durability. Investor activity remained robust, with $4.4B in sales volume, an average price per unit of $313,000, and cap rates holding at 5.6%, reflecting long-term confidence in the metro’s steady leasing velocity and strong income stability. Demand continues to be anchored by the region’s diversified economic foundation. Federal government agencies, legal services, education and research institutions, and professional and business services collectively sustain one of the country’s most reliable employment ecosystems. These sectors not only support consistent household formation but also create a resilient base of high-credit renters who value proximity to major job centers, transit infrastructure, and urban amenities. Even as portions of the national economy softened in 2025, D.C.’s employment profile remained steady, enabling the market to absorb new supply at a pace that outperformed expectations. Looking ahead to 2026, D.C.’s outlook is bolstered by several key tailwinds. Supply growth is set to moderate from its recent highs, reducing pressure on vacancy and setting the stage for a more balanced leasing environment. Population and job growth remain concentrated in high-income, urban neighborhoods with sustained demand for quality rental housing. The market’s ability to quickly absorb new units in 2025, combined with its structurally stable employment base and durable renter demographics, positions Washington, D.C. for above-average investment appeal as it heads into 2026. D.C.’s Population Growth Follows National Trends, But Continues to Outperform Source: Matthews™ Research, CoStar Group, Inc. Northern New Jersey By the Numbers 2025 | Newark & Hudson County | Source: CoStar Group, Inc. Sales Volume: $1.1B Average Price Per Unit: $314K Cap Rate: 5.7% Vacancy Rate: 3.0% Annual Rent Growth: 6.2% Annual Net Absorption: 4,329 Units Northern New Jersey’s multifamily market is shaping up for a standout 2026 as it benefits from powerful cross-currents of demand, ranging from New York City spillover to robust local household formation and an increasingly affluent renter base. After another year of exceptional performance the market enters 2026 with some of the enters 2026 with robust fundamentals. Net absorption reached 4,329 units, easily outpacing new supply and driving vacancy down to just 3.0%. Vacancy tightened across every major submarket over the past year, falling 150 basis points in Newark, 190 basis points in Jersey City, and 90 basis points in Hoboken. Rent growth surged to 6.2% in 2025, one of the strongest increases among major U.S. metros. Hudson County commands rents $1,200 to $1,500 above Newark due to superior transit access to Manhattan. Yet relative affordability still favors New Jersey, a dynamic that is likely to intensify if New York expands rent regulations. Rent growth has not recorded negative performance since 2017, marking Northern New Jersey as one of the very few metros to post consistent gains throughout the pandemic and recovery period. With $1.1B in sales volume, $314,000 average price per unit, and cap rates at 5.7% reflect a market that offers both near-term momentum and long-term durability. Should new rent controls be implemented in NYC, demand is expected to shift even more aggressively into Northern New Jersey’s nonregulated stock, accelerating rent growth and further tightening occupancy. Employment conditions further reinforce the market’s trajectory. While statewide job growth has appeared modest, Northern New Jersey’s economy tells a more robust story of diversification and resilience. Education and health services, along with the trade, transportation, and utilities sectors tied to the Port of Newark-Elizabeth, create a massive, stable base of employment. Northern New Jersey is also nearing the peak of its construction cycle. Nearly 7,700 units were delivered over the past 12 months, yet developers have started just 5,500 units over the same period. Looking ahead, Northern New Jersey is poised to maintain this strength in 2026 as several tailwinds converge. Limited construction activity across most submarkets will keep supply pressures minimal, allowing rents to continue rising from a position of already tight occupancy. At the same time, ongoing in-migration from Manhattan, driven by relative affordability, new luxury development in places like Jersey City and the Gold Coast, and expanding transit-oriented districts, is expected to sustain deep demand for high-quality rentals. Northern New Jersey enters 2026 with a compelling foundation for continued outperformance. Northern NJ Sees Highest Cap Rate in a Decade Source: Matthews™ Research, CoStar Group, Inc. San Diego, CA By the Numbers 2025 | Source: Matthews™ Research Sales Volume: $2.2B Average Price Per Unit: $403K Cap Rate: 4.7% Vacancy Rate: 4.1% Annual Rent Growth: (0.2%) Annual Net Absorption: 4,763 Units San Diego enters 2026 with one of the most stable and supply-constrained multifamily landscapes on the West Coast. In 2025, the market absorbed 4,763 units, enough to keep vacancy at a tight 4.1% despite a recent wave of deliveries, as a 20-year high of roughly 5,600 units have been completed so far this year. Although annual rent growth temporarily dipped 0.2%, the region’s underlying demand drivers remain among the strongest in the nation. These drivers include a high-income workforce, continued population gains, and a steady influx of renters priced out of homeownership in one of the nation’s least affordable for-sale housing markets. Investor confidence mirrors these fundamentals, with $2.2B in sales volume, an average price per unit of $403,000, and cap rates at 4.7%, signaling long-term optimism about the market’s trajectory. Conditions are set to strengthen further in 2026 as construction activity begins to moderate and the market rebalances. Much of the elevated supply delivered in 2024-2025 has already seen strong lease-up, particularly in coastal and infill submarkets where land scarcity and restrictive zoning limit future development. In addition, developers have notably pivoted towards smaller units. With fewer projects breaking ground and structural barriers keeping pipeline growth in check, vacancy is expected to tighten further over the next year. At the same time, the region’s expanding life science, defense, biotech, and technology sectors continue to attract high-earning talent. These dynamics point to a market poised for renewed rent growth, sustained occupancy strength, and competitive investor interest in 2026. San Diego Multifamily Supply & Demand Dynamics Source: Matthews™ Research, CoStar Group, Inc. Orange County, CA By the Numbers 2025 | Source: Matthews™ Research Sales Volume: $917M Average Price Per Unit: $453K Cap Rate: 4.4% Vacancy Rate: 4.2% Annual Rent Growth: 1.3% Annual Net Absorption: 4,725 Units Orange County continues to distinguish itself as one of Southern California’s most resilient multifamily markets, supported by exceptionally tight vacancies, durable renter demand, and a pronounced “flight to quality” that is reshaping leasing trends. The county benefits from structural supply constraints, high household incomes, and steady population drivers—all of which position it for strong performance in 2026. The median household income is almost $120K compared to the national average of about $89K, as the labor market continues to attract new residents. Orange County boasts an unemployment rate of -0.09% in comparison to the US rate of 0.54%. Investor sentiment remains confident despite elevated borrowing costs. Sales activity reached $917M in 2025, supported by sustained institutional interest. At $453,000 per unit, Orange County remains among the nation’s most expensive apartment markets, with pricing reinforced by limited land availability and consistent buyer competition. Cap rates hold firm at 4.4%, among the lowest in the country, underscoring the depth of capital targeting high quality, well-located assets. Operationally, the market is anchored by a 4.2% vacancy rate, which is materially below the national average and supported by steady demand from employment centers in Irvine, Costa Mesa, and the coastal submarkets. Even with moderate annual rent growth of 1.3%, absorption remains healthy, with 4,725 units absorbed, nearly matching new deliveries. Importantly, the market’s “flight to quality” trend continues to favor newly built, amenity-rich Class A properties, which are capturing a disproportionate share of leasing activity as high-income renters pursue upgraded, amenity-rich products in a limited-supply environment. With development heavily concentrated in Irvine and minimal new supply elsewhere, Orange County is poised to maintain tight occupancy levels into 2026. With this flight to quality, we are seeing more and more deals sell with negative leverage. We believe this to be a testament to the strength of Orange County multifamily. -Mark Bridge, Executive Vice President With a constrained pipeline, rising household incomes, and rebounding in-migration, Orange County is positioned for firmer rent growth and strengthening investment performance in 2026. As supply remains concentrated in only a handful of submarkets while demand deepens across the county, the market is set to maintain its standing as one of the most competitive and stable multifamily markets in the nation. OC Defies National Trends with Steady Apartment Development Source: CoStar Group, Inc. *Data was compiled through the research via Real Capital Analytics, CoStar Group, Inc. and Real Page, Inc.

Mark Bridge

Executive Vice President & Senior Director

3/5/26

San Diego, CA Retail Development Report Q4 2025

The current leasing landscape across San Diego has become increasingly fragmented, characterized by intense competition for high-quality spaces even as older, mid-sized assets in legacy centers face persistent challenges. While big-box closures have pushed absorption into negative territory, vacancy rates have only edged slightly higher and remain historically stable, keeping overall market conditions near long-term averages. Meanwhile, rent growth has begun to moderate in response to rising availability; however, the combination of limited new construction and the ongoing trend of retail-to-residential redevelopment is effectively preventing a more pronounced softening of the market. San Diego Market Demographics Source: CoStar Group, Inc. Unemployment Rate: 4.7% Current Population: 3,314,677 Households: 1,195,666 Median Household Income: $113,294 San Diego Market Performance The San Diego retail sector ended 2025 with softening fundamentals as store closures outpaced absorption over the year. Vacancy rose to 4.5%, up 50 basis points year-over-year. The vacancy uptick has been concentrated in older power centers, neighborhood centers, and malls where closures have added to available inventory. Strip centers and general retail properties have remained stable, aided by smaller tenants and local demand. Despite the challenges, overall vacancy remains close to the long-term market average of 4.4%. Rent growth has moderated to 1.0% annually as landlords adjust to a more competitive leasing environment. Looking ahead, stable consumer demand and constrained supply are expected to support the backﬁlling of vacant space, keeping fundamentals within a balanced range through the near term. La Jolla Market Activity The overall La Jolla area posted stable performance with vacancy at 4.0% at the end of Q4 2025, a small uptick following around 2,000 square feet absorbed. Vacancy remains below its ﬁve- and 10-year averages, and is forecast to hold steady through 2026. Availability is similarly tight at 4.8%, with roughly 100,000 square feet on the market and no space under construction. Asking rents average $58 per square foot, reﬂecting 2.1% annual growth, outperforming the broader San Diego market despite moderating from historical trends. Development Overview La Jolla began 2026 with 10 more retail vacancies than Paciﬁc Beach and Ocean Beach combined. Village Streetscape, a new development, will bring La Jolla landlords more leverage in achieving competitive price per square foot rates and encourage more foot trafﬁc to support local businesses. Pacific Beach Market Activity Paciﬁc Beach retail maintains stable fundamentals , with vacancy declining 1.8% year-over-year to a tight 2.5%, driven by 55,000 square feet of net absorption and minimal new deliveries. Vacancy now sits well below its ﬁve- and 10-year averages and is projected to compress further by year-end. Availability remains limited at 3.0%, with 94,000 SF on the market and no space under construction. Asking rents average $41.00 per square foot, reﬂecting modest 0.6% annual growth, trailing the broader San Diego market but expected to accelerate through 2026. Development Overview 4450 Lamont Street: 14-unit, mixed-use development planned and approved. Rose Creek Village: 60-unit affordable housing project serving low-income families and veterans. It broke ground on Garnet Avenue and is expected for completion by 2027. Paciﬁc Beach owners have stated they are increasingly interested in adding residential components to existing retail properties. Ocean Beach Market Activity The Ocean Beach area maintained solid momentum, with vacancy declining 0.8% year-over-year to 2.7%, supported by 40,000 square feet of net absorption and limited new deliveries. Vacancy remains below its ﬁve- and 10-year averages and is expected to hold near current levels through year-end. Availability stands at 3.7%, with 170,000 square feet on the market, while construction activity is minimal at 2,900 square feet. Asking rents average $38.00 per square foot, reﬂecting 1.0% annual growth, slightly trailing the broader San Diego market but remaining positive overall. Development Overview Matthews™ secured two leases in the last six months here and leased an additional 3,000-square-foot space on the second ﬂoor of 4967 Newport Avenue. Strong privately-owned businesses and popups are taking advantage of lower rents and a more stable local customer base, shifting into the area from northern markets. Transaction Activity La Jolla Matthews™ facilitated a purchase of a property on Girard Avenue for $2.2 million and are taking on the leasing assignment. Matthews™ also put Free People on the main intersection of Girard Avenue and Prospect Street. The Matthews™ team also sold the corner of Pearl Street for $2.6 million and executed a lease with Roam Hardware. Pacific Beach 960 Turquoise Street: The Turquoise Tower developer out of Los Angeles recently acquired the French Gourmet site for $7 million. While there are no formal plans, ﬁlings, or construction underway, market assumptions have contemplated a signiﬁcantly larger project that is potentially up to three times the existing footprint. This reﬂects longer-term investor interest along the corridor. The Matthews™ team executed 18 Paciﬁc Beach leases in 2025. However, summer 2025 saw more vacancies in Paciﬁc Beach than it had in over a decade. 61% of on-market retail from summer 2025 was absorbed by Q1 2026. Tavern on the Beach Bar sold for $4.4 million, and the parking lot next to Maverick’s at 870 Garnet Avenue sold for $4.35 million. Ocean Beach Rite Aid on Niagara Avenue sold for $12.6 million, signaling that demand remains strong. Despite having one of the lowest vacancy rates in San Diego, business owners along Newport Avenue are reporting sales are down 60% from previous years.

Amara Bagabo

Associate

2/23/26

Changes to the Los Angeles Mansion Tax and Measure ULA

Changes to the Los Angeles Mansion Tax and Measure ULA Los Angeles’ famed “Mansion Tax” was a misnomer from the beginning. The city’s property transfer tax, officially known as the ULA Tax, was introduced as part of Measure ULA to fund affordable housing programs and provide resources to tenants at risk of homelessness. But what most voters failed to recognize in November 2022, when Measure ULA was billed as a tax on luxury home sales, is that its provisions apply broadly to residential and commercial properties above a certain value threshold. The so-called Mansion Tax was never just about mansions. Updated ULA Tax Thresholds Following its first year in effect, the ULA Tax adjusted its thresholds to account for inflation. As of mid-2024, transactions above approximately $5.3 million are subject to a 4% transfer tax, while transactions above $10.6 million are assessed a 5% tax. These updated thresholds represent modest increases from the original $5 million and $10 million benchmarks, but continue to capture a wide swath of commercial and multifamily transactions across Los Angeles. One Year Later: Revenue vs. Market Impact While Measure ULA was originally projected to generate between $672 million and $1 billion annually, early collections fell well short of expectations. Initial reports showed revenue lagging significantly during its first year, coinciding with a sharp slowdown in transaction volume as owners accelerated sales ahead of implementation and buyers adjusted underwriting assumptions post-launch. More recent data paints a mixed picture. According to LA Business First, Measure ULA has now generated approximately $1 billion across more than 1,400 transactions since taking effect. Supporters argue the tax has become a meaningful funding source for housing initiatives, calling it an “economic engine” for the city. However, opponents continue to point to structural distortions in the market. Research cited by CalMatters from UCLA and the RAND Institute estimates the policy has resulted in 1,900 fewer apartment units delivered annually, including a reduction in affordable housing production. A separate study by Harvard, UC Irvine, and UC San Diego researchers found that the slowdown in sales significantly reduced property tax collections, offsetting an estimated 63% of the transfer tax revenue generated by Measure ULA. New Developments: Amendments May Head to the Ballot In a notable shift, the Los Angeles City Council has voted to advance proposed amendments to Measure ULA for further review by the city’s Housing and Homelessness Committee. The proposal, introduced by Councilmember Nithya Raman, includes a 15-year exemption from the ULA Tax for new commercial, multifamily, and mixed-use construction, tied to the issuance of a certificate of occupancy. “The proposed 15-year exemption tied to a project’s certificate of occupancy could give developers the certainty needed to move forward on multifamily and mixed-use projects, helping bring much-needed housing supply back online in Los Angeles.” – Adam Feldman Additional elements of the proposal include a one-time exemption for Palisades fire victims and technical changes intended to accelerate the deployment of collected funds. While an attempt to fast-track the amendments to a near-term ballot failed, the stated goal is to place the revised measure before voters in November 2026. Industry groups, including NAIOP SoCal, have noted that a development-focused exemption could materially reduce ULA exposure on qualifying projects, restore financing certainty, and unlock reinvestment that has stalled under the current structure. Current Listings Exposure Under Measure ULA Despite ongoing debate around amendments, Measure ULA continues to affect a significant share of active inventory across Los Angeles. According to CoStar, at the start of 2026, more than 1,000 active listings fall within or near the current ULA tax thresholds, underscoring the policy’s broad reach across commercial and residential assets: $5,000,000–$5,150,000 value: 53 properties $10,000,000–$10,300,000 value: 31 properties $5,150,000–$10,300,000 value: 800 properties $10,300,000+ value: 492 properties Outlook for the Mansion Tax Compared to the pre-implementation rush to sell in 2023, today’s environment is defined by hesitation. Owners and buyers remain cautious, particularly when transaction values fall near ULA thresholds. While proposed amendments signal growing acknowledgment of the tax’s unintended consequences, uncertainty will likely persist until voters weigh in. Until then, investors should expect continued friction in transaction activity, heightened sensitivity around pricing and timing, and ongoing headwinds for commercial and multifamily development in Los Angeles, even as the policy’s long-term future remains in flux.

Adam Feldman

Associate Vice President

2/5/26

The Matthews™ Podcast — Matt LoPiccolo

West Coast Shopping Center Trends with Matt LoPiccolo In this episode of the Matthews™ Podcast, host Matthew Wallace kicks off the Publication Takeover Series with the National Shopping Center Overview, breaking down shopping center trends with the help of regional experts. Matthews™ Senior Vice President Matt LoPiccolo joins to discuss key retail and shopping center trends across the West Coast. With nearly a billion dollars in transaction experience across California and the broader Western region, LoPiccolo brings grounded, real-time insight into a market defined by both competition and complexity. A Career Built on Specialization and Understanding Risk LoPiccolo’s path into retail investment sales began with local San Diego shopping centers, a highly hands-on, information-driven asset class. Early in his career, he immersed himself in site-level intel: CAM structures, big-box turnover risk, lease-up economics, and the intricacies of multi-tenant operations. Over time, these fundamentals shaped his specialization. He learned that shopping centers carry layers of uncertainty not found in single-tenant assets, from operational exposures to business-plan variability. That complexity became an advantage, sharpening his approach to underwriting, basis evaluation, and deal strategy. Why West Coast Retail Remains Competitive Despite higher borrowing costs, West Coast retail continues to outperform. LoPiccolo identifies two major drivers: 1. Low Inventory + Strong Fundamentals Vacancy remains tight across most Western metros, preserving landlord leverage and keeping competition elevated—even in a challenging capital environment. Deals that do hit the market draw attention, especially in stabilized neighborhoods and grocery-anchored centers. 2. Healthy Tenant Demand Fast-casual dining, fitness concepts, and coffee operators continue expanding, providing steady absorption and anchoring neighborhood centers. While some categories feel saturated, overall demand remains consistent across suburban and coastal submarkets. How Underwriting is Changing Higher interest rates and a 35–40% rise in operating expenses over the past decade are forcing buyers to underwrite more conservatively. Even triple-net centers face absorption questions as tax reassessments and CAM escalations reset tenant costs. Downside Protection Matters More Than Ever Investors want clarity around basis, rollover timing, big-box risk, and true NOI. The new priority is not just upside potential—but downside certainty. LoPiccolo reflects on how volatility has shifted investor psychology: Understanding your downside risk is the foundation of every deal today. Value-Add Hasn’t Disappeared Older definitions of value-add, simple lease-up, light repositioning, or rent mark-to-market, are less common today. Instead, modern value-add often requires: Higher capital injection More operational cleanup More patience More certainty in the business plan Many legacy owners have low bases and long-term stability, making pricing gaps more pronounced. Meanwhile, buyers expect to be compensated for risk associated with box vacancies, rising rents, and redevelopment scope. As LoPiccolo puts it: Value-add hasn’t gone away, it’s just evolved. There’s still opportunity, but the market is demanding clarity, cleaner execution, and a real justification for the risk. The Risk Factor of Post-COVID Rents One unique challenge emerging in the West is the dramatic increase in build-to-suit and big-box rents. LoPiccolo notes some uses—coffee, QSR, even grocers—are signing deals at 50–60% higher rents than just a few years ago. While developers need these rents to offset construction costs, investors increasingly question sustainability. Even long-term corporate leases feel less invincible when rents exceed historical norms by such a margin. This “post-COVID rent reset” will influence valuations for years to come and sits at the intersection of capital, tenant health, and long-term exit strategies. What Investors Are Asking Today Across his client base, LoPiccolo sees several recurring themes: Basis: Is the entry point defensible relative to replacement cost and risk? Risk: What’s my exposure to turnover, downtime, and re-tenanting costs? Expenses: How will OpEx growth and tax reassessment impact tenant absorption? Timing: Does the business plan realistically match my investment horizon? Buying retail today requires a deeper understanding of tenant health, the cost of re-tenanting boxes, and the long-term operational outlook of each center. What Will Shape the West Coast Market Next? While broader capital markets remain fluid, LoPiccolo believes West Coast retail will continue to offer durable opportunities for disciplined investors. Key forces to watch: The sustainability of post-COVID rent levels The evolution of value-add underwriting and execution Tenant category shifts and oversaturation risk Expense growth and tax reassessment impacts Big-box re-tenanting trends and redevelopment plays The Human Side of Brokerage: Persistence, Authenticity, and Failure Beyond market dynamics, LoPiccolo offers advice to rising CRE professionals: Do not be afraid to fail. Getting in front of a client is the win. He stresses that success in retail brokerage comes from consistency, transparency, and authenticity—not just deal outcomes. Clients value advisors who deliver honest insight, even when the message is that now may not be the right time to sell. Long-term relationships, he says, are built on trust and clarity. In a fluid market, that kind of candor and alignment often matters more than short-term transaction volume. Guiding Principles for Leaders Navigating Today’s Market LoPiccolo leaves listeners with core philosophies that have grounded his career: Embrace failure as part of growth. Stay authentic. Relationships drive everything. Know the story behind every asset. Understand risk before chasing reward. Be persistent and patient. These principles, paired with disciplined underwriting and real market awareness, define successful navigation of today’s West Coast retail environment—and set the tone for the Publication Takeover Series as it moves through other regions across the country.

Q&A Keegan Mulcahy | San Diego Market Leader

Building Brokers and Markets: A Conversation with Keegan Mulcahy Q: You’ve had notable success attracting senior agents to the office. What do you think resonates most with experienced brokers, and how do you position the Matthews platform to support their next chapter? A: Every agent is different, driven by their own unique set of motivations. However, we’ve noticed that most agents who join Matthews™ are drawn by the same three core value propositions: Support Platform: Our internal resources, including sales operations, proprietary technology, and marketing divisions, are designed to streamline agent workflows, enabling our brokers to focus on building their business and driving revenue growth. Direct Partnership Growth: Matthews™ dedication to hiring, recruiting, and training the next generation of brokers has built a proven track record of retention and development, equipping top talent with the tools and support to scale their brokerage in ways they haven’t been able to before. Culture: Agents are drawn to the collaborative, growth-driven culture at Matthews™, recognizing the value it brings to their business and their partners alike. Q: Early in your career, when you were specializing in STNL retail, you were able to establish yourself as a leader in the sector. What helped you develop that skill set so quickly? A: I received tremendous training and support from both the firm and my mentor. Understanding the importance of specialization early on, I immersed myself in product type specific knowledge such as sales comps, on-market comps, construction costs, reading tenant 10-Ks, setting Google alerts for target tenants, and memorizing franchisees’ information. This practice has remained a lasting asset throughout my career, enabling me to provide clients with informed insights and communicate from a well-versed perspective. Furthermore, when you’re putting in 80 to 90 hours a week, calling thousands of owners, underwriting deals, and presenting proposals, your learning curve accelerates quickly. You begin to build on your own momentum, and as you start transacting at higher volumes, it starts to click. You learn how to leverage one deal into the next and begin to see the growth compound in a positive way. Q: What is the biggest challenge you’ve faced in your career? A: The most challenging time in my career was when COVID-19 hit, which coincidentally happened to be the same week I was driving from LA to Nashville to help open the Nashville office. My pipeline was heavily weighted with STNL casual dining deals (non-drive-thru restaurants), and every escrow died within those first two weeks of COVID. I am proud of how I scrapped my way through that year, ultimately surpassing my production volume in the previous year and substantially growing the Nashville office. Q: Many brokers spend their early days just building a pipeline, but you hit the ground running, earning the Pacesetter Award in your first year at Matthews™. What advice would you give to a new broker trying to find their footing in today’s volatile market? A: Keep your world small, block out the noise, and hit your daily commitments no matter what. Create commitments and break them down annually, quarterly, monthly, weekly, and daily. This helps alleviate the anxiety associated with the long sales timelines of brokerage and keeps your energy focused on daily production. One day, you’ll look up and those days will have turned into a few years, and you will be very grateful for the work you put in. Q: Today, as an executive Market Leader and a three-time Chairman’s Award recipient prior to becoming a Market Leader, what made you want to become a mentor? A: Prior to stepping into my role as Market Leader, I was mentoring multiple agents, forming strategic partnerships that helped take my brokerage to new heights. More importantly, I realized I was naturally drawn to mentoring as I found it to be deeply fulfilling. Real estate is a people business–you become extremely close with those working alongside you. Having the privilege to watch an agent progress from their first day of training to becoming a million-dollar producer and knowing you played even a small role in that success is one of the most rewarding aspects of the career. Q: Guiding young brokers gives you a full-circle perspective on the progression of a broker’s career, as if you are watching the beginnings of your own journey unfold. How has that influenced the way you help brokers approach deals or navigate the business today? A: As a mentor, I draw on my experiences as an agent and incorporate them into my coaching. I believe the success I’ve built gives my agents something to buy into and believe in. I share both my successes and failures, often reminding them that I’m passing along very expensive lessons I’ve learned throughout my career, lessons they can benefit from and avoid repeating. Q: What trends in San Diego are you looking for heading into the second half of the year? A: The San Diego market remains highly competitive, and I anticipate transaction volume will continue to increase into the end of the year. In a perfect world, we’d see rates drop, a stabilization in global trade as tariff deadlines expire, and Sellers begin to adopt more realistic pricing expectations. Together, these factors could drive a meaningful uptick in transaction volume. We’re already seeing some optimism, with the passing of the Big Beautiful Bill and the first round of rate cuts, which should help stimulate activity. We also need to see an increase in multifamily transaction volume, as the sector fuels much of the 1031 exchange market into other asset classes. Q: If you could go back and give yourself one piece of advice, what would you say and why? A: Trust your gut. Never quit.

Keegan Mulcahy

Market Leader

11/21/25

National Housing Permits Slowdown Sets the Stage for Southern California Growth

Across the U.S., new housing construction is slowing. Rising mortgage rates and elevated inventories have created a market imbalance that’s forcing national homebuilders to scale back new projects. Nationally, the supply of new homes has reached a 9.2-month inventory, meaning there are 9 new houses for sale for every new home sold, far above the historic 6-month norm – a clear signal that many builders are hitting pause. For every new home sold, nine others sit unsold, and new permitting activity has fallen sharply. In most markets, that signals a cooling cycle. How Southern California is Fundamentally Different Unlike many regions that overbuilt during the lowrate years, Southern California never came close to meeting its housing demand. Even as construction declines nationally, the region faces the opposite problem – a structural housing shortage that continues to deepen. While the national unsold inventory index stands at 9.2, Southern California’s reading of 3.9 highlights just how tight the region’s for-sale housing market remains compared to the rest of the country. By all measures, Southern California is the primary metro driving the national housing shortage. At the county level, Los Angeles County faces a deficit approaching 800,000 units, the largest in the nation. Orange County and San Diego County each show shortages near 200,000 units, and along with Los Angeles County, they represent three of the five largest housing shortages in the nation. Permitting trends further highlight how underbuilt the region remains: through the first eight months of 2025, Inland Empire single-family permits fell 17% year-over-year, while Los Angeles, Orange County, and San Diego metros held flat at historically low levels. Even with roughly 18,500 new single-family permits issued in 2025 across these counties, the f igure remains far below what’s needed to offset the nearly 1-million-unit regional housing deficit, particularly given the number of homes lost in the wildfires earlier this year. The imbalance represents a powerful tailwind While national headlines focus on declining permits and slowing sales, the Southern California slowdown simply compounds an existing shortage – creating long-term opportunity for those positioned to deliver new housing. With limited new supply entering the pipeline, vacancy rates across the region’s rental markets are expected to compress, pushing rents and asset values higher. The combination of persistent demand, limited construction, and constrained land supply will continue to favor developers that build through the noise. In short, the national slowdown is temporary. Southern California’s shortage is structural. And for those still building, that distinction matters.

Rosie Cooper

Executive Vice President

11/20/25

San Jose, CA Industrial Market Report Q3 2025

After a hiring boom during the pandemic, driven by surging demand for cloud computing, tech companies began implementing hiring freezes and layoffs by mid-2022. These cutbacks have continued into the second half of 2025, particularly in the information sector. Despite these headwinds, San Jose remains a top hub for innovation and technology, attracting a highly-educated workforce. With an average GDP growth rate of 8.3% over the past decade and ongoing investment in artiﬁcial intelligence and advanced technologies, San Jose is expected to maintain its position as a leading center for innovation and economic growth. San Jose Demographics Source: CoStar Group, Inc. Unemployment Rate: 4.1% Current Population: 2,014,794 Households: 712,103 Median Household Income: $166,391 Population, Labor, and Income Growth Source: CoStar Group, Inc. Key Findings Although tenant moveouts have led to a high vacancy rate of 8.5%, logistics spaces maintain a stable vacancy rate of 6.8%. Construction activity remains elevated near a 20-year peak with 4.7M square feet underway. Institutional investors and tech ﬁrms like Nvidia and Foxconn continue to make strategic acquisitions, signaling long-term conﬁdence in the market. Market Performance San Jose’s industrial sector continues to note muted activity, due to cautious tenant behavior and slower economic momentum. Leasing activity remains subdued as logistics and ﬂex tenants delay expansion amid expectations of weaker consumer demand. Total absorption was negative, with around -695K absorbed in Q3 2025, while the vacancy rate rose to 8.5%. The slowdown follows years of strong post-pandemic growth as many companies had expanded their distribution networks between 2021 and 2023. With elevated construction levels and moderating rent growth, tenants now have greater leverage in lease negotiations. The average asking rent is $25.39 per square foot, with a low rent growth rate of -1.2%. Market fundamentals are expected to stabilize in 2026 as interest rates ease and demand strengthens San Jose Industrial Supply & Demand Dynamics Source: CoStar Group, Inc. San Jose Construction Industrial construction in San Jose remains high, with activity nearing a 20-year peak despite a slight slowdown in 2025 deliveries. About 4.7M square feet of space is currently underway, highlighting sustained developer conﬁdence. The ﬂex sector accounts for 1.5 million square feet, led by Intuitive Surgical’s 847,000-square-foot R&D and manufacturing facility in Sunnyvale. Meanwhile, data center construction continues in Santa Clara, though limited power availability may constrain future projects. Logistics development totals 1.8 million square feet, or 3.4% of inventory, surpassing the national average. Developers are increasingly targeting advanced manufacturing and food industry tenants, favoring build-to-suit over speculative projects. SF Construction Starts Source: CoStar Group, Inc. SF Under Construction Source: CoStar Group, Inc. Sales Industrial sales in San Jose are still recording a slowdown, reﬂecting the effects of higher interest rates. Third quarter sales volume totaled $535M, contributing to about $1.4B in transactions over the past year. Activity has centered on major portfolio deals led by institutional investors and owner-users, while many others remain cautious. Notable transactions include Foxconn’s $128 million purchase of six Sunnyvale ﬂex buildings and Nvidia’s $123 million acquisition of 10 properties near its Santa Clara headquarters. Despite limited activity, prices remain elevated with a sale price of $361 per square foot, underscoring San Jose’s status as one of the country’s most expensive industrial markets. San Diego Industrial Sales Volume Source: CoStar Group, Inc.

San Diego, CA Industrial Market Report Q3 2025

San Diego’s top-performing economy is driven by the military, innovation, and tourism. The defense sector remains essential for the metro as it includes over 140,000 active duty and civilian military employees, along with around 370,000 jobs tied to defense. Meanwhile, innovation is aided by the presence of employers like Scripps, the Salk Institute, Meta, and Apple. In 2024, tourism contributed around $22 billion to San Diego’s economy. Visitors are increasingly drawn to the metro for its beaches and attractions. San Diego Demographics Source: CoStar Group, Inc. Unemployment Rate: 4.3% Current Population: 3,317,126 Households: 1,201,741 Median Household Income: $110,272 Population, Labor, and Income Growth Source: CoStar Group, Inc. Key Findings Otay Mesa remains favorable for its proximity to the U.S.-Mexico border, and it accounts for one-third of the metro’s new supply with Amazon’s 1.1 million-square-foot project located here. The metro is noting an increase in concessions, which includes around ﬁve months of free rent and ﬂexible lease terms A new airport redevelopment in Otay Mesa is expected to be ready by year-end, and its upgrades will aid international trade. The project is forecast to have a $1.5 billion economic impact on the metro. Market Performance San Diego’s industrial market has faced headwinds, with vacancy rising to 9.5% in the third quarter. This is the highest level since 2012, driven by biotech vacancies in North County and distributor pullbacks in South County. Despite a brief rebound in early 2025, leasing momentum has stalled amid tariff-related uncertainty, prompting occupiers to pause expansion plans, particularly near the border. Net absorption over the past year totaled -1.9 million square feet, with another -118,978 square feet in the third quarter, reﬂecting weakening demand. Rent growth declined 0.9% year-over-year, as landlords offered more concessions to retain tenants. For example, logistics spaces have begun to offer ﬁve months of free rent with ﬁxed annual increases of 3%. Landlords are also being more ﬂexible on lease terms, with one- to three-year terms for large occupiers becoming more common San Diego Industrial Supply & Demand Dynamics Source: CoStar Group, Inc. San Diego Construction San Diego’s industrial construction activity has slowed after 7.9 million square feet of new space delivered over the past three years. Nearly one-third of upcoming completions stem from Amazon’s 1.1-million-square-foot built-to-suit logistics facility in Otay Mesa, which continues to anchor the region’s industrial growth. Availability remains highest in new logistics buildings between 100,000 and 250,000 square feet. Otay Mesa has seen inventory expand by more than 50% since 2020, with 1.6 million square feet still vacant. While select inﬁll projects in Central County are leasing quickly, it may take time for recent completions to be fully absorbed. SF Construction Starts Source: CoStar Group, Inc. SF Under Construction Source: CoStar Group, Inc. Sales San Diego’s industrial investment market has slowed, with third quarter sales volume at $220 million and annual totals holding at $1.6 billion, roughly 40% below the pace seen between 2015 and 2019. Market participants estimate values have dropped around 30%, prompting lenders to adopt a more cautious stance. Institutional and fund-level buyers have pulled back, accounting for less than 20% of acquisitions, while REITs were largely inactive. Notable trades included CenterPoint’s $80 million purchase of 4400 Rufﬁn Road, EQT Exeter’s $23.5 million Otay Mesa acquisition, and BKM Capital’s $70.2 million deal in Kearny Mesa. San Diego Industrial Sales Volume Source: CoStar Group, Inc.

San Diego, CA Retail Market Report Q3 2025

San Diego’s retail market in Q3 2025 reflected a challenging leasing environment marked by rising availability and moderated rent growth. More than 800,000 SF of space entered the market in the first half of the year, pushing availability to 5.3%, the highest since 2021. Much of this space came from older big-box closures, while newer Class A properties remained highly competitive with availability two points below the metro average. Leasing demand has been strongest for newer spaces, with nearly 60% of activity occurring in listings under f ive months old, reducing median lease-up times to seven months. Rent growth slowed to 1.5% annually, down from 2023’s 5% peak, though overall rents remain more than 33% higher than a decade ago. Key Findings Despite headwinds, San Diego retail recorded $344M in sales volume with cap rates at 5.8%, reflecting continued investor confidence in well-located assets. Retail vacancies rose to 4.5% as closures drove negative absorption of 173K SF, but limited new supply has kept overall market stability intact. Asking rents averaged $36.28 per SF with 1.5% annual growth, moderating from pandemic highs, yet embedded growth remains strong across high-demand coastal submarkets. San Diego Retail Supply & Demand Dynamics Source: CoStar Group, Inc. San Diego Demographics Source: CoStar Group, Inc. Unemployment Rate: 4.3% Current Population: 3,316,542 Households: 1,201,472 Median Household Income: $110,139 In Q3 2025, San Diego’s economy remained anchored by its defense, innovation, and tourism sectors. The military continued to account for roughly one in four jobs, while life sciences and tech firms expanded their presence in the Golden Triangle and UTC areas. Tourism activity stabilized with visitor spending sustaining strong levels despite total visitation still below pre-pandemic highs. Infrastructure projects in Otay Mesa, including the airport redevelopment, advanced toward 2025 completion, positioning the region for greater trade growth. However, persistent housing shortages and high costs continued to strain household formation and workforce retention. Population, Labor, & Income Growth Source: CoStar Group, Inc. San Diego Retail Construction San Diego’s retail market has about 700,000 SF under construction, just 0.5% of inventory. Many sites are being repurposed for housing or mixed-use, with rents needing up to a 40% increase to justify speculative projects. Notable redevelopments include the former Sears in Chula Vista, Dixieline Lumber in Kearny Mesa, and Balboa Park restaurants, often taking up to five years to upzone. Between 2015–2019, net supply grew 1.5 million SF after a prior five-year decline. The 1 million-SF Campus at Horton adds 300,000 SF of retail, though completion is uncertain. Outside downtown, only 50,000 SF is available. Future retail will mostly be in mixed-use projects. SF Construction Starts Source: CoStar Group, Inc. SF Under Construction Source: CoStar Group, Inc. San Diego Retail Sales By Q3 2025, San Diego’s retail investment market showed stability after recent lows, with sales volume around $1.2 billion over the past year, consistent with pre-pandemic averages. Cap rates remained steady between 5.0% and 6.5%, despite rising interest rates. Institutional and REIT buyers represented 20% of purchases, while private investors targeted cash-flowing NNN-leased properties, often using 1031 exchanges. Availability increased slightly but remained historically tight. Notable recent deals included Primestor’s Chula Vista Center, Oceanside’s Plaza Rancho Del Oro, Decron’s Mira Mesa Market West, and freestanding properties in Poway and Mid City. Properties with entitlements or mixed-use potential attracted strong buyer interest. San Diego Retail Sales Volume Source: CoStar Group, Inc. By the Numbers Source: CoStar Group, Inc. Sales Volume: $334M Price Per SF: $267 Cap Rate: 5.8% Vacancy Rate: 4.8% Rent Growth: 1.5% Asking Rent Per SF: $36.28 Under Construction: 698K SF Delivered: 9.7K SF Absorbed: (173K) SF

San Diego, CA Multifamily Market Report Q3 2025

San Diego’s multifamily market in Q3 2025 remained stable but challenged by affordability pressures. Vacancy held at 5.4%, steady quarter over quarter and below last year’s peak, supported by widespread concessions that tempered further increases. Downtown vacancy, which surged above 10% in 2024, has eased slightly as new deliveries leased up, though units are sitting vacant longer and lead conversions remain weak. Rent growth was just 0.2% year-over-year, well below the long-term 3.1% average and the national pace, with asking rents averaging $2,500 per unit. Despite modest rent gains, many operators continue offering incentives, even on renewals, to sustain occupancy, and rent growth is unlikely to materially accelerate before mid-2026. Concessions are expected to remain widespread well into next year, keeping rent growth modest through at least mid-2026, with a return to the long-term average pace not anticipated until 2027. Key Findings Vacancy held steady at 5.4%, with rent growth muted at 0.2% year-over-year, significantly trailing the national average. Widespread use of concessions continues to suppress effective rent gains and is expected to persist into 2026. Institutional investors remain cautious due to soft rent growth and heavy reliance on concessions, though stable vacancy and sustained absorption signal underlying market resilience. Development momentum remained strong with 8,700 units under construction, 2,000 units delivered, and 1,100 units absorbed during the quarter. However, supply continues to slightly outpace demand, particularly in luxury segments with vacancy in Class A assets reaching 10.2%. San Diego Multifamily Supply & Demand Dynamics Source: CoStar Group, Inc. San Diego Demographics Source: CoStar Group, Inc. Unemployment Rate: 4.3% Current Population: 3,316,914 Households: 1,201,643 Median Household Income: $110,223 San Diego’s economy is powered by a strong mix of military, innovation, and tourism. The defense sector anchors roughly 25% of local jobs, supported by major installations like Camp Pendleton and a growing Navy presence, while contractors such as Northrop Grumman, Qualcomm, and General Atomics fuel employment. Innovation thrives with over 80 research institutes and a robust life sciences and tech ecosystem, including Amazon, Meta, and Apple. Tourism adds another layer of strength, generating $22 billion in FY2024 from 32 million visitors drawn to the region’s coastline, attractions, and proximity to Baja and Los Angeles. Cross-border trade through the Otay Mesa Port of Entry and major infrastructure projects further bolster growth. San Diego’s Base Sectors Source: The City of San Diego Manufacturing International Trade Military Tourism Population, Labor Force, & Income Growth Source: CoStar Group, Inc. San Diego Multifamily Construction Construction activity remained elevated, with 8,700 units under construction, representing about 3.1% of existing inventory and aligning with the region’s five-year average. Developers continue to deliver a steady stream of new supply, with 2,000 units completed and 1,100 units absorbed during the quarter, while 5,300 units are scheduled to open by year-end following 5,000 completions last year, one of the highest totals in the past decade. Despite strong development momentum, regulatory hurdles, lengthy entitlement processes, and high construction costs, particularly for workforce housing, remain significant barriers. The pipeline also reflects a shift toward smaller unit types, limiting options for larger renter households and influencing future demand dynamics. Units Construction Starts Source: CoStar Group, Inc. Units Under Construction Source: CoStar Group, Inc. San Diego Multifamily Sales Investment activity in Q3 2025 remained muted amid persistent uncertainty and operational headwinds. Transaction volume totaled $188 million, with assets trading at an average of $184,000 per unit and cap rates rising to 5.7%, reflecting elevated vacancy and rent declines. Despite robust fundamentals on the demand side investors remained cautious due to ongoing regulatory challenges and soft rent performance. In early 2025, MG Properties completed one of San Diego’s largest single-property apartment transactions of the past decade with its $309 million acquisition of the 718-unit Park 12 from Greystar. Pricing adjustments and higher yields have drawn selective interest. However, many buyers continue to take a wait-and-see approach as the market works through supply pressures and a sizable construction pipeline. San Diego Multifamily Sales Volume Source: CoStar Group, Inc. By the Numbers Q3 2025 | Source: CoStar Group, Inc. Sales Volume: $568M Price Per Unit: $402K Cap Rate: 4.7% Vacancy Rate: 5.4% Rent Growth: 0.2% Asking Rent Per Unit: $2.5K Under Construction: 8.7K Units Delivered: 2K Units Absorbed: 1.1K Units

No Anchor, No Problem: Unanchored Strip Center Report

Unanchored strip centers—those smaller, convenience-driven retail properties ranging from 10,000 to 50,000 square feet—are stealing the spotlight in 2025. They might not have a big-name grocery chain or anchor tenant, but they’re more than holding their own. With tight retail supply and resilient consumer spending, these centers are commanding high occupancy, steady rent growth, and increased investor interest. Once seen as a secondary retail type, their adaptability, neighborhood-focused tenant mix, and ability to handle turnover with ease have redefined them as dynamic, core retail assets. This report breaks down the numbers behind this transformation, analyzing performance from coast to coast. Performance Overview Consumer Spending Fuels Growth The overall outlook for retail in 2025 is positive, supported by resilient consumer spending, easing financial pressures, and productivity gains. With job growth and rising wages continuing to put money in shoppers’ pockets, consumer spending, the lifeblood of retail, is strong despite uncertainties in the market. The Metrics: Occupancy and Rent Growth Proving that you don’t need a heavyweight tenant to be a heavyweight contender. Retail space is hard to come by in 2025, with national vacancy at historically low levels, around 4% to 5%. Unanchored strip centers, while slightly trailing their grocery-anchored counterparts, average a 4.5% vacancy rate. Occupancy at unanchored strip centers is holding steady and likely contributing to the overall tightness in the market. Power centers see a vacancy rate of 4.3% and enclosed malls 8.7%. Unanchored strip retail resilience stems from a few key strengths: • Demand for high-quality retail space that far exceeds supply • Resilience of service-oriented and local businesses • Flexibility to accommodate a diverse tenant mix In today’s constrained development environment, where limited new retail construction is coming online, existing unanchored strip centers are well-positioned to capture demand and maintain high occupancy. These same fundamentals are fueling steady rent growth. The average asking rent for strip centers rose from $17.10 in Q1 2019, to $20.85 in Q2 2025, a clear signal of the value tenants place on visibility, convenience, and accessibility. With landlords in a strong position amid elevated occupancy and limited competition, unanchored centers are expected to meet or slightly exceed the projected 2% national retail rent growth rate for 2025. Taking Center Stage Investment Momentum Builds Investor interest in unanchored strip centers has reached new heights. At the heart of their appeal is the relatively low acquisition cost, steady cash flow, and flexibility to adapt leasing strategies to local demand. While private investors have long dominated this space, institutional capital is increasingly entering the fold. Large funds and institutions are drawn to the sector’s straightforward investment and potential for scale, particularly in today’s yield-constrained environment. A growing focus on value-add opportunities is further fueling momentum, as investors seek to unlock upside through improved management, strategic leasing, and targeted renovations. Many of these assets, historically held by private owners, offer room to reposition rents, optimize tenant mixes, and enhance operational efficiency, better positioning them for revenue growth and broader investor appeal. Data shows that cap rates for unanchored strip centers in Q2 2025 average: • Class A: 6.9% • Class B: 7.2% By contrast, grocery-anchored retail centers show slightly lower cap rates in Q2 2025: • Class A: 6.1% • Class B: 5.4% This shift is supported by cap rate trends that suggest healthy return expectations. As of H2 2025, cap rates for unanchored strip centers average 7.0%. These yields remain generally higher than those for grocery-anchored centers, which average 5.7%, reflecting both the slightly higher perceived risk and the value-add potential unanchored centers offer. Many investors are capitalizing on this spread by pursuing active management strategies to boost NOI through improved leasing and repositioning efforts. These assets are increasingly viewed as stable alternatives to other asset classes such as office and multifamily, where returns may be compressing in many markets. However, the segment is not without nuance. Some unanchored centers, particularly those overlapping with categories like freestanding retail or housing vulnerable tenants such as pharmacies and discount retailers, may face short-term challenges. Closures and consolidation in these categories could temporarily raise vacancy rates, primarily in centers with concentrated exposure. Yet, landlords able to backfill with more resilient, service-oriented tenants often see limited disruption. Retail’s Quiet Climbers Trends in the Unanchored Space Resilience of Local Businesses Small, entrepreneurial “mom-and-pop” tenants continue to be a stabilizing force in unanchored strip centers. Their strong personal investment, adaptability, and long-term commitment make them reliable and valuable tenants. Rise of Experimental and Service-Oriented Retail Fitness studios, salons, medical clinics, and diverse restaurants are increasingly occupying space, reflecting consumer demand for convenience and in-person services less vulnerable to e-commerce disruption. Omnichannel Integration Retailers are leveraging unanchored centers as key touchpoints for e-commerce fulfillment—facilitating in-store pickups, returns, and last-mile logistics. These centers help bridge online and physical retail in a consumer-centric way. Regional Deep Dive: Standout Markets of Unanchored Strip Retail West Rebounding with strong, urban core demand in H1 2025 • Los Angeles: $239M • San Diego: $235M • Seattle: $110M • Vegas: $100M Southwest Stable growth with high pricing resilience in H1 2025 • Dallas: $324M • Houston: $175M • Phoenix: $120M • Denver: $113M Midwest Stabilizing, but still in early recovery • Chicago: $334M in 2024, $93M in H1 2025 Northeast Pricing in strength returns amid cautious optimism • NYC: $336M in 2024, $70M in H1 2025 • Boston: $155M in 2024, $48M in H1 2025 Mid-Atlantic Reacceleration led by D.C. and institutional capital • D.C.: $212M in 2024 (3x 2023), $100M in H1 2025 Southeast Consistently leads in volume and momentum throughout H1 2025 • Nashville: $111M • Lexington: $137M • Jacksonville: $113M • South Florida: $100M • Atlanta: $157M • Tampa $131M Regional Deep Dive: Mid-Atlantic The Mid-Atlantic unanchored strip center market entered a transitional phase in 2024, showing signs of recovery after a volatile few years. Total transaction volume reached $494 million for the year—a 6% increase over 2023—fueled by a dramatic 925% surge in portfolio sales, even as individual deal volume declined 11.5% year-overyear. Despite a soft pricing environment in late 2024, with the average price per square foot dropping to $139 and cap rates rising to 9%, the market gained traction heading into 2025. In the first half of 2025, volume reached $243 million and pricing rebounded sharply to $219 per square foot, indicating a flight to higher-quality assets. According to Ed Laycox, EVP of Single & MultiTenant Retail at Matthews™, the Mid-Atlantic remains “a premier investment geography for any investor type,” owing largely to strong demographic trends. “The robust population growth in Virginia and the Carolinas has only fueled the investment appetite more,” he explains, noting that REITs, private equity firms, and family offices have all been especially active. The D.C. Metro and Secondary Market Dynamics In 2024, performance was led by the D.C. metro, which posted $211.8 million in volume–more than tripling its 2023 total and making it the clear focal point for regional investor interest. Laycox attributed the sharp pricing rebound in D.C. largely to replacement cost dynamics. “The cost to construct a new space for a tenant is very prohibitive in today’s market–the D.C. market in particular,” he says. “When you can buy a center 50-60% below replacement cost and still get a market cap rate, your future downside is limited.” This affordability relative to new construction is also helping drive retail vacancy rates in unanchored strip centers to all-time lows. Richmond also emerged as a bright spot, matching its prior peak with $52 million in volume. Meanwhile, markets like Philadelphia and Baltimore saw pullbacks, and Pittsburgh, Harrisburg, and Norfolk remained relatively muted. Small investors are moving to secondary markets of the Mid-Atlantic, chasing yield and lower price per square foot. Early 2025 data shows the D.C. metro leading the region with over $100M in transactions year-to-date, while Philadelphia is growing with $65M already transacted in H1 2025, already above 2024 volume. Shifting Capital Composition and Tenant Demand The capital composition of the market also began to shift. Institutional investors, after net selling nearly $97 million in 2024, returned in force in early 2025 with $55.7 million in net acquisitions— signaling renewed confidence in Mid-Atlantic retail opportunities. REITs were also active buyers in 2024, posting their largest net inflow in over a decade at $65.2 million. However, they have yet to record any deal activity in early 2025, suggesting a strategic pause or wait-and-see approach. As Laycox puts it, “the REIT and institutional investors are focused on the growth markets as they view these areas as opportunities for rent growth.” Laycox also notes a significant shift in tenant mix and demand patterns across the region. Big and medium-box spaces are increasingly being filled by experiential retailers and medical users such as “kids’ play concepts, bounce zones, urgent cares, and outpatient surgery centers.” Asset Performance: Urban Infill, Suburban, and Value-Add Urban infill and suburban strip centers are performing well across the region, buoyed by the replacement cost advantages and tenant demand trends Laycox highlights. However, he points out that value-add opportunities are rare. Because retail vacancy is low just about everywhere in the Mid-Atlantic, finding a value-add investment is VERY difficult. The ones that are out there generally have some challenging issues or are priced too high—or both. Altogether, these trends point to a market in the early stages of reacceleration, with institutional and private capital leading the way and investor sentiment steadily improving. Regional Deep Dive: Midwest The Midwest unanchored strip center market began showing signs of stabilization and recovery in the second half of 2024, following a two-year slump from the post-pandemic peak. After substantial yearover-year declines through 2023 and early 2024, quarterly sales volumes rebounded sharply–up 50.4% YOY in Q3 and 82.9% in Q4. The year ended with $986 million in total sales, primarily driven by individual asset trades, which comprised more than $950 million of the total. As of H1 2025, $517 million in deals have traded. According to Patrick Forkin, SVP at Matthews™, this surge is “a strong signal that buyer confidence is returning,” underscoring a shift in market sentiment. While transaction activity is on the mend, the market remains well below its 2022 peak of $1.75 billion. Still, pricing trends are encouraging. The average price per square foot is $145 as of H1 2025, and Class A assets record $310/SF, reflecting a clear flight-to-quality. Cap rates rose to 8.2% in Q4 but decreased to 8% as of Q2 2025. Forkin explains that while these elevated cap rates “reflect continued risk pricing, they’re also driving interest from yield-focused private buyers who dominate the region.” He notes that bid-ask spreads are narrowing and that “high-quality deals are moving,” especially in core cities like Chicago, Milwaukee, Indianapolis, and St. Louis. While the cap rate spread between premium and value assets has widened, the volume and pricing data suggest growing buyer appetite, particularly for well-located or stabilized properties. Supply Constraints and Owner Behavior The region’s inventory remains tight, largely due to the ownership profile. “The majority of these properties are privately owned by long-term holders who aren’t under pressure to sell,” Forkin explains. “When sellers believe they’re in a strong pricing window, they’re realistic and ready to transact. Otherwise, they’re comfortable holding for longer.” This dynamic has kept competition strong for quality assets and limited the flow of new listings to the market. Leasing Momentum Driven by Services and Restaurants On the leasing front, service-oriented users have taken the lead. Forkin highlights tenants like medical, dental, urgent care, pet services, salons, and fitness centers as the primary drivers of demand. “These tenants are prioritizing visibility and accessibility over co-tenancy with a traditional anchor,” he notes. Additionally, restaurant demand has increased, with fast casual and local operators expanding in suburban locations offering patio space and drive-thru capabilities. National credit tenants are still active, but the real change has been the rise of experiential and neighborhood-serving users over traditional soft goods. Private Capital Leads, Institutions More Selective ate investors have carried the momentum through the downturn and into the early stages of recovery, accounting for nearly 90% of volume in 2023 and 2024. Institutional and REIT buyers, while still present, have become more selective. “Capital hasn’t disappeared—it’s just more selective,” Forkin says, pointing to continued interest in large metros like Chicago and Minneapolis. He emphasizes that institutional capital is still drawn to the Midwest’s value proposition: “Cap rates here are often 100 to 150 basis points higher than in the Sunbelt or on the coasts.” However, he also notes that many assets in the region are smaller and individually traded, which “doesn’t always match the acquisition strategies of larger institutional players.” Cross-border capital, once a small but steady contributor, has almost entirely exited the market since 2020. If private capital continuous to lead and macro conditions stabilize, the Midwest strip center market is well-positioned for a more sustained recovery in the second half of the year. Suburban Strength and Urban Challenges Suburban strip centers are currently outperforming. “Suburban centers with strong demographics and daily-needs tenants are leading in terms of performance and liquidity,” Forkin affirms. These assets typically offer features like ample parking, high visibility, and flexible layouts—ideal for today’s tenant base. Urban infill assets, while still appealing for their long-term potential, face more immediate headwinds. Forkin cites reduced office occupancy, rising taxes, and population outflows in some cities as contributing factors to softened demand. “Several headwinds have impacted performance in recent years,” he notes, even as these assets maintain strategic value in dense, high-barrier markets. Focus on Stabilized and Light Value-Add Plays New construction remains limited, keeping investor focus on stabilized or lightly value-add assets. “Most investor activity is focused on centers where there’s upside through lease-up, renewal, or modest cosmetic improvements,” Forkin observes. The common thread? “The ability to support modern tenancy needs is key.” Regional Deep Dive: Northeast In 2024, the unanchored strip center market in the Northeast began a clean and measurable recovery after a turbulent 2023. Total transaction volume for the year reached $576.7 million, up 12.9% year-over-year, with a particularly strong Q4 showing $171.2 million, a 43.2% YOY increase. This rebound was driven largely by individual property sales, which totaled $526 million for the year–up 15.5% YOYwhile portfolio activity remained limited, accounting for just $50.7 million. In 2025, pricing strength returned. approximately $206.3 million in deals traded in the first half. While the average price per square foot increased to $201 in Q2, up 4.5% YOY and 16.4% above year-ago levels. Confidence among Northeast buyers remains strong despite modest growth, as investors pay premiums for high-quality, well-located centers. Joanna Manfro, Vice President at Matthews™ explains, Confidence stems from the Northeast’s historical resilience in all economic climates, often acting as a ‘flight to safety’ during turbulent markets. She notes that market downturns in the region tend to be less severe, often followed by quicker recoveries compared to trend-driven areas. This consistent historical performance continues to support buyer optimism, even amid broader economic uncertainty. Strength in Leasing and Pricing Following a strong finish in 2024, investor activity remained measured but focused in the first half of 2025. While overall transaction volume moderated, particularly in Q2, the market continued to reflect a selective but steady flow of capital targeting high-conviction opportunities. A total of 34 properties traded in H1 2025, with the majority occurring in Q1, underscoring a continued appetite for quality assets despite macro uncertainty. Cap rates held firm at 7.3%, unchanged from the prior year, suggesting sustained competition and disciplined pricing. Leasing fundamentals across the Northeast continue to support firm pricing. “The Northeast’s high barriers to entry and consistent demand generally support higher PPSF,” Manfro notes. She points out that while rent growth may be steady rather than rapid, the region’s lower risk profile and historical stability “justify the pricing for many investors,” helping to sustain elevated values. Early 2025 Momentum and Buyer Trends Looking into early 2025, momentum has continued, though at a more tempered pace. Investor appetite remains active, with private capital continuing to drive most activity. However, Manfro states that the buyer pool is broadening. “There’s increasing cross-regional interest, notably from California investors seeking stability amidst their market dynamics,” she says. “Some Southeast investors are also evaluating the Northeast for slightly better yields,” viewing the region as less competitive, but still fundamentally Sales Volume Source: RCA $1B strong, an alternative to their home markets. Institutional buyers also remain engaged, drawn by the Northeast’s long-term reputation for stability. Market Hotspots and Evolving Demand Certain submarkets within the Northeast are drawing heightened investor attention. “Suburban urban cores near major cities are attracting significant investor interest,” Manfro explains, highlighting areas such as Westchester, NY and Fairfield, CT, Northern New Jersey, NASA and Suffolk County, NY and Boston’s MetroWest region inside the 495 Corridor. These locations have “not only weathered the post-COVID landscape but have sustained growth and investor interest due to their appealing live-work-play lifestyle and accessibility to urban hubs.” Necessity-based retail remains the cornerstone of demand across the region. Manfro emphasizes that essential services—food, health, and fitness— continue to underpin stable occupancy, but she also sees emerging shifts. “The resilience of these core sectors suggests continued strong occupancy alongside potential growth in experiential retail and services catering to evolving suburban lifestyles,” she notes, pointing to a gradual diversification in tenant mixes as suburban consumer preferences evolve. Regional Deep Dive: Southeast The Southeast unanchored strip center market surged in 2024, emerging as one of the most active regions nationwide. Total transaction volume reached $2.14 billion–a 33.2% year-over-year increase–driven by robust growth in both individual and portfolio-level trades. Pricing metrics also strengthened, with the average price per square foot climbing to $230 and cap rates compressing to 7.1%, reflecting strong demand for neighborhood retail across the Sunbelt. That momentum has carried into 2025, with $1.5B closing as of Q2. Pricing rose further to $264 per square foot, though cap rates have ticked up to 7.3% amid recalibrated risk premiums and tighter financing conditions. According to Jeff Enck, Senior Vice President at Matthews™, the sustained surge in activity is no surprise. “Historically, the Southeast has imported a lot of capital from the West Coast and Northeast due to higher yields,” Enck explains. “That gap is narrowing, but the Southeast remains relatively attractive in terms of cap rates and price per square foot. Migration to metros like Miami, Atlanta, and Charlotte continues to rise–driven by job growth, business-friendly policies, and no or low income taxes. These factors are translating into persistent demand for essential-service retail.” Market Leaders and Regional Hotspots Miami/South Florida led all Southeast metros in 2025 with $283 million in sales, followed by Atlanta at $160 million, underscoring investor confidence in major gateway markets. Vacancy rates across the Southern U.S. remained exceptionally low, averaging under 4%, with standout markets like Nashville, Miami, and Raleigh/ Durham posting vacancies below 3%. The Carolinas, in particular, have emerged as a national hotspot for retail, supported by high occupancy (around 97%) and population growth across both urban and suburban corridors. Tourism-driven demand, especially in Florida’s coastal cities, further enhances the region’s appeal. Nearly every major MSA in the Southeast is in high demand. We’re seeing the most heat in high-income suburbs and dense, urban infill locations–particularly South Florida. That’s where some speculative pricing has emerged, but it’s really limited to those rare, high-end corridors. Shifting Capital Stack and Competitive Dynamics Private investors remained the dominant force in 2025, accounting for 79.4% of acquisitions, but the tide is beginning to shift. Private investors have become net sellers, prompted by refinancing pressures, maturing debt, and capital market headwinds. REITs, by contrast, stepped in aggressively, acquiring $141 million in 2024 and $136 million in H1 2025. Their share of acquisitions now hovers near 20%, signaling a growing appetite for high-quality, yield-generating strip retail. Enck says, There are still very few true institutions acquiring unanchored retail centers. Curbline is a rare exception–they’re replacing their entire portfolio of grocery and power centers with strip centers. Meanwhile, quasi-institutional groups and funds are focusing on well-located strips that trade below replacement cost and offer long-term upside. The challenge? There just aren’t enough quality properties to go around. Buyer demand continues to outpace quality supply, particularly for centers offering stable tenancy, belowmarket rents, or redevelopment potential. Enck notes that while public and private interest is rising, buyers are struggling to compete–especially in a landscape where top-tier assets are increasingly scarce. Interest Rate Pressure and Financing Trends High interest rates have reshaped the market’s financing dynamics. “Treasury yields have remained fairly flat in recent quarters, with some short-term dips,” Enck observes. “Savvy buyers have been able to lock in opportunistic rates, but in general, we’re seeing fewer deals close unless the asset is high quality and offers long-term stability.” Most financing is now coming from credit unions and life insurance companies. CMBS lending, once a staple of strip center financing, has all but dried up for these smaller assets. “Buyers are largely steering clear of short-term; high-leverage capital. Instead they’re targeting Class A or well-located Class B properties that pencil out under positive leverage. Class B and C assets are still trading, but only when they deliver yields above borrowing costs,” he adds. Tenant Mix and Leasing Fundamentals Tenant fundamentals remain strong in the Southeast, with unanchored strip centers attracting a growing mix of convenience, dining, and medical uses. “Coffee is still in growth mode,” Enck says, “Along with both franchise and local restaurants, urgent care clinics, dental offices, and veterinary users.” This evolving tenant-mix has helped keep demand high for available space, driving steady rent growth and keeping vacancy tight. In many cases, these newer tenants are backfilling older vacancies and stabilizing income streams, particularly in fastgrowing suburban trade areas. Outlook: Stability and Strategic Positioning The Southeast remains one of the most liquid and competitive regions for unanchored strip center investment in mid-2025. Private capital continues to drive the market, but institutional and REIT activity is rising. The investor profile is shifting toward buyers with long-term hold horizon and value-add strategies centered around demographic tailwinds and essential-service tenancy. “Southeast retail continues to offer compelling fundamentals,” Enck concludes. “You’ve got population growth, tax advantages, a strong tenant base, and pricing that still looks attractive relative to other regions. That’s a powerful combination–and one that keeps buyers coming back.” Regional Deep Dive: Southwest The Southwest unanchored strip center market demonstrated clear signs of stabilization in 2024 following the sharp downturn in 2023. Total transaction volume for the year reached $1.91 billion, up 12.9% year-over-year, driven by consistent individual property trades, which totaled nearly $1.77 billion. While Q4 volume declined 19.2% yearover-year–likely due to macroeconomic caution or closing delays–the full-year uptick and a 286% year-over-year surge in portfolio sales pointed to a reemerging wave of institutional interest. Early 2025 activity confirms renewed momentum, with $1.1B in transaction volume and 142 properties closed or pending as of Q2 2025. According to Grayson Duyck, Vice President and Associate Director at Matthews™, 2025 has been off to a roaring start, “we’ve been the busiest we’ve ever been, in Dallas specifically.” Pricing dynamics in 2025 are particularly strong. The average pricing rose 11.2% year-over-year to $214 per square foot. This pricing strength was accompanied by a 11.2% year-over-year increase in total square footage traded. Cap rates have decreased 20 basis points over the last year to 7%, reflecting broader repricing trends. Yet in 2025, cap rates dipped to 7% by Q2, indicating increased bidding activity for stabilized products. Duyck noted that investor psychology has shifted compared to a year ago. “People have gotten to the point where they’ve accepted market conditions and want to get deals done,” he explains. “Last year, buyers and sellers were far apart. Now, expectations have met the market.” Capital Flows and Investor Profiles The composition of capital in the Southwest continues to evolve. Institutional investors returned in force in 2024 with $84.7 million in net acquisitions but have reversed course in early 2025, registering $95.3 million in net dispositions–likely signaling profit-taking amid shifting macro conditions. REITs remained more cautious, contributing modest net acquisitions of $29.4 million in 2024 and $19.7 million in net dispositions in 2025 as they selectively reposition their portfolios. Private capital remains the most active and agile investor group, ending 2024 with a moderate $56.2 million in net outflows before returning to net buyer status in early the first half of 2025 at $110.2 million. Duyck says, Private owners are more willing to play ball. They don’t need to hit exact return metrics like institutions do. They can move faster and make decisions quicker, which gives them an edge in competitive environments. Tenant Trends and Leasing Fundamentals Southwest tenant demand remains robust, specifically in major Texas metros. Dallas, in particular, is seeing outsized activity from food and service users. “Restaurants are the most active in the market right now–especially franchise concepts and freestanding quick-service formats like Cava,” Duyck notes. “We’re also seeing a lot of boutique f itness–class-based models like pilates, yoga, barre, are outperforming the big-box gyms.” Many of these tenants are adapting to high rents by shrinking their footprints. “To combat higher costs, tenants are taking less space. They’re still doing strong business, but they’re being smarter with layouts,” Duyck adds. Strong regional brands continue to show a preference for well-located, unanchored centers–even over grocery-anchored formats in some cases. “These centers on busy streets are still pulling in great traffic,” he says. “Tenants are seeing the same performance they would in larger centers, without the institutional lease structure.” Drive-thru configurations also remain in high demand, although Duyck sees caution on the horizon. “Drive-thru space is red-hot,” he says. “But long-term, we’re going to see questions emerge around whether tenants can generate enough volume to justify the rent. It’ll be interesting to see how it plays out.” Construction, Constraints, and Regional Growth Despite strong leasing, development activity remains restrained. “Construction costs are still high, and vacancy rates are extremely low, especially in Dallas, where retail vacancy is under 4%,” Duyck explains. “Because there isn’t much new construction, rents have gone up. It’s getting very competitive.” This imbalance between supply and demand is driving renewed suburban expansion. “Collin County, Frisco, Prosper, Forney–those northern suburbs are booming,” Duyck says. “High-net-worth families are moving out of the city. Places like Kaufman County and Walsh Ranch–these thousand-acre master-planned communities–are drawing big interest.” Kaufman County has been recognized as the fastest-growing county in Texas and one of the fastest-growing counties in the nation. Austin also remains a bright spot for growth, thanks to its booming tech sector and rapid population gains. Along with Phoenix and DFW, Austin continues to be a top market for tenant absorption and new development, particularly for flexible, service-oriented retail formats that cater to growing suburban populations. Sales Strategy and Market Caution While pricing remains strong, Duyck advises that buyers need to approach new construction deals with caution. “Some of these centers have inflated NOI because of generous tenant improvement packages. The rents being paid now aren’t always replaceable,” he notes. “Exchange buyers, in particular, don’t always account for that. If you’re buying a deal, make sure the rent is sustainable in the long run.” Outlook: Normalization and Competitive Position The Southwest market appears poised for steady growth in 2025. Institutional participation may remain selective, but private capital is showing clear signs of renewed conviction. With pricing stabilizing and buyer expectations realigning, deal velocity is expected to improve–especially for well-located, Class A assets. “There’s so much growth and population expansion across the region,” Duyck concludes. “Investors have adjusted to the new normal, and we’re finally seeing that translate into real transaction volume. Everyone’s back at the table.” Regional Deep Dive: West The year 2025 is proving to be a pivotal recovery year for the Western U.S. unanchored strip center market. Total quarterly transaction volume reached $588M in Q1 2025 and $363M in Q2 2025, together the first half of the year represents close to a 40% year-over-year increase. Pricing trends further underscore renewed confidence: the average price per square foot reached $301, while cap rates compressed to 6%, marking a significant shift from the wider spreads seen in 2023. These metrics suggest growing competition for limited quality assets and optimism around income durability and long-term upside. According to Conrad Sarreal, First Vice President and Director at Matthews™, several structural and economic tailwinds are fueling the region’s momentum. West coast multi-tenant retail continues to experience aggressive bidding and cap rate compression–often 50-100 basis points tighter than similar assets elsewhere. California metros benefit from a deep pool of both private and institutional capital, particularly high-net-worth individuals and family offices. In cities like Los Angeles and San Francisco, cap rates can dip as low as 4.5% to 5.5% for prime locations. Metro Performance and Investor Focus Performance across key Western metros reinforces this recovery narrative. Los Angeles led the region with $625 million in 2024 transaction volume and posted a strong $249 million start in the first half of 2025, highlighting its central role as a gateway for both domestic and international capital. San Diego, Las Vegas, and Seattle also posted year-over-year gains in 2024 and 2025, underscoring investor interest in metros with strong demographic and economic fundamentals. Urban core strip centers in these cities continue to attract significant capital thanks to tight vacancy (96%+), rising rents, and an evolving tenant mix that reflects modern consumer preferences. “These centers are poised in dense, high-traffic areas near affluent neighborhoods and transit hubs,” Sarreal says. “West Coast multi-tenant centers increasingly feature experiential tenants–boutique fitness, craft breweries, and specialty services–now making up 1530% of new leases in 2025, especially in places like Los Angeles and Seattle.” Meanwhile, performance in San Francisco and Sacramento remained relatively muted. San Francisco has seen transaction volume fall sharply from its 2022 peak, with just $46 million recorded year-to-date, as investors remain wary of broader economic headwinds and a sluggish return-to-office trend. Urban Core Resilience and Market Fundamentals The structural strength of urban strip centers continues to set the western region apart. Development in dense urban cores remains constrained by sky-high costs and regulatory complexity. In cities like Los Angeles and San Francisco, urban retail development can cost $450$650 per square foot, while California’s CEQA regulations further slow the pipeline. As a result, new supply remained limited in 2024, adding just 0.2%0.5% of inventory in primary markets–boosting pricing power and tightening already low vacancies. “Despite population shifts, West Coast metros still benefit from high-income consumers and strong retail demand,” Sarreal notes. “With average occupancy rates between 95%-96%, tenant stability and consumer spending reinforce premium pricing.” He points to the concentration of wealth in cities such as San Francisco ($160,000 median household income), San Jose ($150,000), and Seattle ($120,000) as key drivers of tenant performance and rent growth. Capital Composition, Institutions Return, REITs Retreat Institutional investors have reemerged as key buyers, accounting for 11.9% of acquisitions in 2025 after remaining largely on the sidelines in 2023. This renewed activity signals rising confidence in the sector’s income durability and long-term upside. REITs, by contrast, have become net sellers, representing over 20% of dispositions so far this year. Private investors still dominate overall, but the buyer mix is shifting. “Secondary markets like Sacramento and Fresno are seeing growing interest from family offices and 1031 buyers,” notes Sarreal. “These investors are pursuing value-add players like lease-up or repositioning and are drawn by higher yields and lower pricing relative to urban cores.” Secondary and Tertiary Market Divergence While primary urban markets continue to anchor investment volume and pricing stability, secondary and tertiary markets are carving out their own roles. Sales Volume Source: RCA $4B Secondary markets such as Sacramento, Tacoma, and Fresno are gaining momentum with 10-12% investment growth, fueled by private capital and affordability-driven migration. Tertiary markets, including Bakersfield and Spokane, showed 7-8% growth, attracting smaller private investors willing to accept higher yield and risk exposure. Cap rate spreads illustrate the divergence: primary markets trade in the 4%-5% range, while secondary markets offer yields of 5.5%-6.5%, and tertiary markets reach 6.5%-8%. Outlook: A Repricing Moment with Strategic Opportunity Urban cores remain the benchmark for stability and institutional capital, while smart money increasingly targets secondary markets offering favorable yield spreads relative to borrowing costs. Tertiary markets remain opportunistic, but speculative bets. “Urban hubs provide long-term stability, but the real growth story may be in the secondary markets,” Sarreal concluded. “They balance risk and reward more effectively and offer a yield premium that looks increasingly attractive given where debt costs are.” As pricing stabilizes and buyer composition diversified, Western unanchored strip centers are once again positioned as a competitive asset class–both for core investors and value-driven players seeking durable income in a constrained supply environment.

CRE Trends You Won’t See in the Data

The retail landscape is in constant flux, shaped by evolving consumer behaviors, rapid technological advancements, and shifting economic tides. In this dynamic environment, staying ahead requires more than just reacting to trends—it demands a deep understanding of the market’s inner workings. At Matthews™, our market leaders are at the forefront of this transformation, navigating complex challenges and capitalizing on emerging opportunities. In this article, they share their invaluable insights, offering an inside perspective on the retail segment’s current state in their markets and the latest innovations driving the future of retail. Dallas, Texas The Dallas retail market benefits from a rare combination of strong population growth, corporate relocations, and business-friendly policies—but what often gets overlooked is how underserved certain suburban trade areas still are. While the headlines focus on legacy corridors like Uptown or Preston Hollow, pockets in areas like Prosper, Forney, Celina, and Midlothian offer compelling returns with significantly less competition. As such, leasing momentum has begun to pick up in suburban submarkets—especially in areas with new rooftops and school developments. The eastern end of Henderson Avenue is set for a major revitalization. Trend Tracker: Upcoming Buildouts Acadia Realty Trust and Ignite-Rebees have broken ground on a 161,000-square-foot mixed-use development spanning a quarter-mile between Glencoe Street and McMillan Avenue. “Designed by Dallas-based GFF, the project will feature 10 architecturally distinct buildings housing 75,000 square feet of retail space, 12,000 square feet of chef-driven restaurant space, and 74,000 square feet of office space,” Gross said. Top Retail Spot Katy Trail Ice House: It’s become a go-to for brokers, clients, & locals alike. It captures the essence of Dallas: casual, energetic, & relationship-driven. – Andrew Gross, Managing Director Houston, Texas Houston has enjoyed a low cost of living, in large part thanks to the metro area not having traditional zoning, Market Leader Patrick Graham stated. “Voters have rejected zoning ordinances multiple times,” Graham said. “Instead of zoning, we have private deed restrictions and municipal development regulations. That has massive implications on commercial real estate investments in this market.” “An investor should not buy or sell a commercial property without local representation to offer a guiding hand,” Graham said, “as implications from zoning can include uncertainty, risk, and planning challenges. This may be different from what an investor from a different market is accustomed to when their prior markets had strictly controlled local zoning ordinances,” Graham stated. Yet, without zoning, the market can react more quickly to supply and demand factors, he added. “If a shopping center or multifamily complex in Houston is charging above market rents because of high demand, the market will adapt,” Graham said. The lack of zoning represents a lower barrier to entry than more restrictive markets. Trend Tracker: Coffee Shop Moves “Payton Torres and Luke Armetta in the Houston office are representing a new concept coming to market called Black Sheep Coffee,” Graham said. “They’ll be adding locations in 2025 and 2026 throughout Houston. Any shopping center will be enhanced with Black Sheep Coffee as a tenant in an end cap with a drive-thru.” With 14 specialty coffee projects permitted through Q3 2025, Houston’s caffeine infrastructure continues outpacing national growth averages. Favorite Retail Spots Sitting out on the patio at Mendocino Farms for lunch in Uptown Park on a pretty day is hard to beat. True Food Kitchen in BLVD Place and Local Foods on Post Oak are across the street from our office and making me convert to a healthier diet. I do, however, still enjoy a smash burger-double with fries and a cookies and cream shake from Burger Bodega on Washington. Cleveland, Ohio Retail in Cleveland remains historically tight and recorded a 4.5% vacancy rate as of Q2 2025. There has been ongoing positive absorption for the past two quarters, with spaces being quickly leased up. Due to consistently high absorption levels, about 40% of available space is Class C, creating limitations for the already tight retail sector. According to Market Leader Matthew Wallace, the lack of space is a function of the lack of development over the last decade. The construction decline pushed the Cleveland retail sector to focus on experiential retail opportunities. Trend Tracker: Experiential Retail Due to shifting consumer preferences, experiential retail is the name of the game. “Experiential retail has come about in response to increased online competition and a refocusing of retailers on what the customer wants,” Wallace said. “Since those retailers are successful, space has become limited. You have to draw people in with great service, convenience, or unique value play. As experiential retail drives demand in Cleveland, Wallace added Crocker Park as a notable property that continues to lean into consumer experiences. Located in the Westlake submarket, the open-air mall boasts experiences from tenants like Color Me Mine, Urban Air Adventure Park, and The Escape Game. With its vast opportunities for consumers, Crocker Park recorded nine million visits in the last 12 months, and an average dwell time of 68 minutes. Retailers to Watch Dining: Local restaurants near me are where I splurge. Thyme Table, Boss Chick & Beer, & Taki’s Greek. Can’t get enough. Shopping: “Ticknors Men’s Clothiers at Beachwood Place Mall. Gotta look sharp! Denver, Colorado Supply is historically tight in Denver with approximately 381,000 square feet under construction, down 21.8% from 2024. “This scarcity of supply has created a landlord-friendly market and led to availability rates around 4.7%, which is among the lowest in a decade,” stated Brayden Conner, Associate Market Leader. As supply remains tight, Conner added that he expects leasing velocity in high foot traffic areas to remain high. “As we see Denver continue to grow, we are seeing tenants put more emphasis on being near areas with heavy foot traffic counts like Sloan’s Lake, Lower Highlands & RINO,” Conner said. “There is also increased demand in suburban submarkets like Parker, Lone Tree, and Thornton.” Trend Tracker: Development Spotlight “While Denver is known for its abundance of outdoor activities, including skiing, biking, golf, and hiking, its retail trends are casting a similar picture,” Conner stated. Conner also highlighted the ongoing movement for new developments across the metro. “Single-tenant development continues to be an arms race, with national tenants being the most aggressive on core locations,” he said. “New concepts are having to settle on locations outside the city. Regional brands like Swig, Good Times Burgers, and Mad Green continue to expand their footprints locally and are ramping up growth throughout the region.” As people continue to move to the area and prioritize experiences, entertainment venues and interactive retail concepts are driving demand. Standout Retail Location The Sloan’s Lake/Edgewater neighborhood, located west of downtown, is a market I would continue to keep a close eye on. Tennyson Street in that area has seen an uptick of luxury brands revitalizing the area. San Diego, California With expenses increasing across the county, investors need to be cognizant as to how this trend can impact their tenants, according to Market Leader, Keegan Mulcahy. “Expenses have been climbing substantially over the past two to three years, and owners who have gross leases have felt the pain as it eats into their NOI,” Mulcahy said. “However, even for owners with NNN leases, the trend still impacts their assets as tenants who are responsible for these expenses may be struggling to remain profitable.” This activity has led to a decreased number of tenants that can afford to pay the current market rents, in conjunction with the increased expenses. “Ideally, landlords can negotiate sales reporting clauses in their leases,” Mulcahy emphasized. For landlords, understanding their tenant’s store sales and profit margins is critical. Trend Tracker: Latest Retail Movement “Investment sales velocity is starting to see an uptick,” Mulcahy said. “Particularly, the uptick has been seen with lower price point assets that purchasers can acquire all cash or are utilizing very low LTV, which helps deals to still pencil with today’s interest rates.” Additionally, there are high volumes of opportunities with tenants who are backfilling vacant drugstores and bank branches. “With the amount of vacancy in both sectors, tenants and landlords are starting to get creative in ways to repurpose these buildings,” Mulcahy said. Favorite Retail Spots One Paseo – A ±23.6 acre mixed-use site boasting Class A office space, 40+ shops, & luxury apartments. Valley Farm Market – A grocer with top-quality groceries & ready-made food. Los Angeles, California Los Angeles retail is defying national trends. According to Market Leader Erik Vogelzang, infill locations are resilient, propped up by limited new supply and near-impossible entitlements. “This creates a supply-demand imbalance that keeps quality retail assets in demand,” Vogelzang said. He added that a shift is occurring in the retail market. “The focus is moving away from traditional shopping toward experiential retail—restaurants, bars, coffee concepts, boutique fitness, and wellness,” Vogelzang stated. People want to gather, not just transact. Trend Tracker: Expansion Movement “Stormburger is one to watch. Growing fast, brand-forward, and picking smart markets with precision. They’re building real brand equity early and it’s translating into smart expansion.” Top Retail Destinations “The Point in El Segundo hits every note. Lifestyle-driven, hyper-local, & constantly buzzing. Chapman Plaza in K-Town is another standout with heritage architecture & booming foot traffic. Culver Steps is carving out its own cool factor with creative energy, a great tenant mix, & a perfect fit for that Westside tech-meets-culture vibe.” Abbot Kinney in Venice is still a must-hit for brand exposure, walkability, & consistent consumer draw. Downtown Manhattan Beach is a strong mix of daytime & nighttime traffic. We just placed Bread Head there in a fantastic deal. The South Bay as a whole is having a real moment.” Phoenix, Arizona Following the low retail vacancy rate trend across the country, Associate Market Leader Milton Braasch stated that Phoenix recorded a record-low vacancy rate of 4.6% during 2024. “In a broad national market that is facing headwinds, the investment and continued population growth of the Phoenix metro can somewhat insulate the market to see continued strong performance,” Braasch said. Braasch added that Maricopa County, which encompasses the Phoenix metro, is one of the fastest-growing counties by population growth nationally. “I am continuing to watch this trend as we move through 2025 as it will drive where our market is headed,” Braasch said. “I foresee this growth continuing in all parts of the Valley, which will continue to push our CRE market forward as a pacesetter in the United States.” More people = more demand More demand = economic growth Economic growth = CRE prosperity Trend Tracker: Transaction Movement “The biggest challenge we face in the transaction market continues to be navigating the cost of debt and managing the bid-ask spread as brokers,” Braasch said. “The more realistic we can be with clients on current market conditions, the more often we can bring out deals that are priced to sell, versus pricing six months in the past with deals that do not pencil for buyers.” Thriving Restaurant Scene “The Phoenix restaurant market is one that is always evolving. With the revitalization of Downtown Phoenix & the continued growth of Scottsdale, new restaurant concepts are always coming into the Valley & looking to expand their footprint.” “I am a food-forward person, so my favorite thing to do is find new great restaurants. Though it is hard to keep up with trying them all since so many new concepts are popping up all the time.” Nashville, Tennessee The ongoing population increase in Nashville led to a rise in retail demand, pushing the vacancy rate to 3.3% as of Q2 2025. This is a continuing trend for the metro as vacancy has been below 3.5% since 2022. “It feels like all of Nashville is increasing significantly,” stated Managing Director Hutt Cooke. “There has been consistent demand in Nashville for nearly a decade.” Cooke stated that a prominent factor for Nashville is its investment community. “The largest landlords in this market did not just get lucky by being in Nashville,” he expressed. “They saw the growth and opportunity and took advantage of it.” The metro’s strong investment environment is also aided by the variety of investors coming to Nashville. “In recent years, we have had a lot of coastal capital come into the city and pay extremely high prices,” Cooke added. “Local folks have a low cost basis, keep up with market rent, and cash flow. Different business models and they both can work.” Tenants and investors see the long-term growth of Nashville and want to be a part of it. Trend Tracker: QSR Competition According to Cooke, investors should keep an eye out for new QSRs coming to Nashville. “QSR operators are exploding the Nashville market,” he said. “We are seeing new corporations make a big splash in Nashville to keep up with their competitors.” New QSR tenants are taking over projects under 10,000 square feet, with tenants like Dutch Bros Coffee and Whataburger actively expanding in Nashville. Dutch Bros Coffee recently made a move in its growth plans by leasing a space in Murfreesboro that will be its 13th store in the metro. Newcomers and Local Favorites “I am very excited about the new Italian sandwich shop, All’Antico Vinaio. They recently opened two new locations in Nashville.” “Being located in Broadwest, I go to Halls at least once a week. It is hard to beat a Halls Chophouse Steak.” Chicago, Illinois While investors may target areas like The Loop or Magnificent Mile, other locations are important to track for their strong performance, according to Market Leader Joshua Bluestein. Bluestein added that performance levels are varied across Chicago. “The areas with the most increase in sales and leasing velocity are in single-tenant and high-traffic corridors, as well as Chicago suburbs,” he said. “In the suburbs, vacancy rates have dropped to a near 20-year low, mainly due to quite a bit of new development.” Meanwhile, core areas are noting a slowdown in performance. “Leasing and sales are slowing down in Downtown Chicago, such as The Loop and River North,” Bluestein added. “Vacancy rates in The Loop are about 30% with concerns over high rent costs, staffing, and safety issues.” The south and west sides of Chicago are showing great promise and growth, driven by strong local demand and limited e-commerce penetration. Trend Tracker: Value and Luxury Retailers “The most active retailers in the Chicago MSA right now are value-oriented retailers like GAP and Uniqlo who are making a splash with new locations in core, high traffic areas, such as Michigan Avenue,” Bluestein said. “Premium and boutique brands, like Hotel Chocolat and Marine Layer, are also adding new locations. These higher-end brands are targeting areas like Lincoln Park for their stores.” Areas to Monitor “Chicago is full of neighborhoods with great retail like Gold Coast and Lincoln Park. There is retail for everyone in Chicago!” “The Gold Coast is especially popular as the area consists of high-end retailers, such as YSL, Peter Millar, among many others. The area also boasts quite a few high-end restaurants and upscale hotels, like the Waldorf Astoria.” Northern New Jersey, New Jersey Associate Market Leader Jermaine Pugh stated that while Hudson County may be overlooked for nearby New York City, it offers a variety of retail opportunities. “Hudson County’s Gold Coast shares many of the same development fundamentals as Brooklyn, with strong rent growth, prime lots, and ideal conditions for transit-oriented, mixed-use projects,” Pugh said. “Unlike New York City, the area benefits from pro-growth local governments, streamlined approvals, and more landlord-friendly rent laws.” Pugh added that cities like Jersey City, Hoboken, and Weehawken offer a more efficient and profitable development path without the regulatory burdens faced in New York City. Yet, Pugh said that the bid-ask gap is necessary to watch as it is occurring on most active listings. “Buyers can’t raise their offers, due to current high interest rate pressures, while sellers are reluctant to lower prices since they can’t clear their debt at reduced price points,” he emphasized. “This disconnect will likely come to a head as loans mature, forcing owners to either sell or inject additional equity to meet loan-to-value requirements.” These tenants drive demand in mixed-use and grocery-anchored centers, especially in suburban and transit-oriented areas. Trend Tracker: New Tenant Arrivals According to Pugh, the most active retail tenants are food and beverage operators, boutique fitness and wellness brands, and healthcare or daily-needs service providers. Some particular tenants adding new locations in the area are CAVA and Sweetgreen as Pugh said they are targeting New Jersey suburbs with high-income demographics for their growth. CAVA is adding new locations in East Brunswick, Union, and Marlton; meanwhile, Sweetgreen is delivering properties in Morristown and Westfield, with the Westfield location recently opened. Top Retail Destinations “The best retail spots are in Northern New Jersey’s Gold Coast. Hoboken’s Mile Square is an eclectic mix of national retailers, trendy boutiques, & authentic global cuisines.” “A go-to spot is Downtown Montclair. This affluent suburb is known for its vibrant arts, culture, & dining scene. Its main retail strip—Bloomfield Avenue—thrives on high-end shops, boutique fitness, bookshops, indie cafés, & experiential concepts that align with the community’s creative energy.” New York, New York As Manhattan multifamily, mixed-use, and retail-driven property values have remained relatively stagnant since Q2 2023, a once-in-a-decade opportunity is presenting itself for investors to purchase at 10-year highs for yield and 10- to 20-year lows on a price per square foot basis, depending on property location and degree of rent regulation. The market is currently experiencing the longest sustained duration of offering properties for sale in downtown Manhattan with above 6% yields since 2010-2011, as well as multifamily buildings selling for below $500 per square foot, which has also not occurred in prime downtown markets since 2010-2011. Trend Tracker: Transaction Movement The Matthews™ New York specialists are currently marketing properties in Chelsea at pricing that is 25-30% lower than where comparable properties sold for on a price per square foot basis in 2015, showing that upside in both yield and basis is available. The current interest rate environment will create opportunities for future recapitalization, appreciation, and outsized returns in a market that has historically had the highest barrier of entry. Transaction volume will likely remain low, while first-time Manhattan buyers continue to find attractive yields. Both pricing and volume will increase when the Federal Reserve begins a consistent campaign to target lower interest rates. Why New York? We look for people who have spent time here, are enthusiastic about what the city offers, and recognize its uniqueness is not something you can find anywhere else. “The energy you feel in the city reverberates off the density of the buildings around you and what goes on within their walls. If a candidate’s eyes light up when they talk about the possibility of working on that as a product of their profession, then they’re probably for us,” Cory Rosenthal, Executive Managing Director & National Director, Multifamily

Andrew Gross

Senior Managing Director

9/19/25

Hotel Labor Costs Rise

How Growing Labor Pricing Impacts Hotels Rising labor costs have emerged as a primary challenge for the U.S. hotel industry, putting pressure on profit margins. While top-line performance has been strong, the persistent increase in employee compensation, coupled with other operational expenses, has made it harder for hotels to translate revenue growth into equivalent bottom-line improvements. This trend is a complex issue driven by a variety of economic, social, and market-specific factors. Macroeconomic Landscape Impacts Labor Costs The American Hotel and Lodging Association estimated that hotels paid a record $123 billion in wages, salaries, and other compensation in 2024, which is a 20% increase from 2019. This substantial growth in labor costs is rooted in several key components. One large factor is ongoing labor shortages as the hospitality sector continues to face staffing challenges. Around two-thirds of hotels across the country reported persistent labor decreases at the end of 2024, with many being understaffed. The decline is a result of the pandemic when many employees left the sector, and it has been compounded by a high turnover rate. Hotel managers and owners are now increasing wages in order to attract employees back. Elevated inflation across the country has also impacted the hotel industry. With the rising cost of living, hotel employees and their unions have pushed for wage increases to maintain their purchasing power. This resulted in several strikes across the country by hotel workers last year, which led to significant pay raises across the sector. An additional contributor to increased costs is the resurgence of group and corporate travel. Although it has boosted revenue, it has also required the need for more employees. Full service hotels have seen a greater increase in the labor cost per available room, compared to limited-service hotels, as they require more employees to support on-site dining and catering. Impact on Hotel Profitability While U.S. hotel profits have grown in recent years, the increase has been limited by rising labor costs and other inflationary pressures. For example, hotel profits rose in 2024, but labor costs also grew by 11.2% year-over-year. This has led to a decline in gross operating profit, leading to difficulties for hoteliers to match the same level of profitability from before the pandemic. The increasing use of overtime and contract labor, which often comes at a higher cost than regular staff, is another factor contributing to the rise in labor costs. This is a common strategy for hotels trying to manage staffing shortages without over hiring full-time employees, but it comes with its own financial penalties. Main Markets Noting Increased Labor Costs The impact of rising labor costs is varied across the country. Certain metros and top-tier markets are experiencing more significant increases, due to a combination of high costs of living, strong union presence, and intense competition for talent. Specifically, markets in the Sunbelt recorded some of the highest increases in labor costs. San Diego and Phoenix were at the top for noting the greatest upticks, with both metros noting a rise of 33% in labor costs from 2019 to 2024. Los Angeles and Miami were also some among the largest increases, recording a jump of 29%. Upticks will most likely continue to occur in Los Angeles as the city’s legislation passed a law that will raise hotel employees’ minimum wage to $30 an hour by July 2028. While the return of demand has provided a revenue buffer, the rising movement of wages, benefits, and operational expenses are persistent headwinds. The trend is especially ongoing in major metros where labor competition is occurring, unions are strong, and the cost of living is high. For hoteliers, managing these costs will be critical for maintaining profitability and ensuring the long-term financial health of their properties.

Mitchell Glasson

First Vice President

9/18/25

San Diego, CA Retail Leasing Market Report

San Diego’s retail landscape is undergoing a realignment, with tenants zeroing in on value-driven opportunities and landlords adapting with flexibility. Despite elevated availability, leasing momentum is building, fueled by competitively priced, move-in-ready spaces that are outperforming the broader market. Market Overview Despite elevated availability across the market, momentum is building as leasing activity begins to rebound. Tenants are increasingly focused on well-located spaces priced 25 to 30 percent below market averages, signaling a shift toward value-driven decision-making. Landlords who lead with flexibility are gaining the edge. With average lease-up timelines now exceeding eight months, competitively priced, move-in-ready spaces are capturing attention early and outperforming the broader market. Throughout Central San Diego, leasing trends are also shaped by the surrounding environment. UC San Diego’s prominent medical campus brings a high volume of daytime employees to the area, supporting weekday traffic. At the same time, new bike lanes, particularly along 30th Street and University Avenue, have created parking constraints near residential blocks and storefront corridors after the removal of hundreds of spaces. These challenges sit alongside strong fundamentals: dynamic main streets, cultural anchors, and an active retail mix that continues to draw residents, workers, and visitors. As tenants grow more selective and neighborhoods evolve, successful lease-ups are coming down to positioning, pricing, and readiness to occupy. Retail realignment is taking shape in San Diego’s most connect urban corridors. Vacancy Rate Comparison Source: CoStar Group, Inc. Key Market Takeaways for Owners Hillcrest 1. Rents are undergoing correction, but leasing momentum is building—absorption is up 96% year-over-year. 2. High availability has created a tenant-favorable market, where quality, well-located spaces attract attention. 3. Pricing is driving decisions: Spaces asking around $2.33/SF per month are seeing meaningful traction versus the $3.33/SF market average. 4. With no new supply in the pipeline, landlords offering move-in-ready spaces are positioned to capitalize on demand. Major Market Considerations Hillcrest Focused Plan Amendment Approved In July 2024, the San Diego City Council approved a 30-year rezoning plan for Hillcrest, enabling over 17,000 new residential units along with mixed-use development and increased density. Leasing Impact: A larger residential base will drive long-term foot traffic and support stronger retail demand across the submarket. SANDAG’s Normal Street Promenade & Transit Upgrades More than $20 million in infrastructure improvements—including expanded sidewalks, bike lanes, and pedestrian plazas—are currently underway. Leasing Impact: Enhanced walkability and placemaking are creating new retail-friendly corridors with design-forward appeal. The upgrades come at the cost of on-street parking, potentially reducing leasing benefits for retailers that rely on convenient customer access. North Park 1. Vacancy has increased notably, signaling a shift in market dynamics—though availability remains below that of Hillcrest. 2. An active construction pipeline with 134K SF underway reflects ongoing investor confidence. 3. Asking rents remain steady, creating upside potential for upgraded, well-located retail spaces. 4. A solid 24-month lease renewal rate of 41% suggests that well-positioned operators are choosing to stay and reinvest. Major Leasing Drivers Urban Infill Development at 3450 El Cajon Blvd A five-story mixed-use project adds 29 residential units above ground-floor retail—space is currently available for lease. Leasing Impact: A larger residential base will drive long-term foot traffic and support stronger retail demand across the submarket. Neighborhood Density and Transit Access North Park remains one of San Diego’s most walkable and transit-accessible neighborhoods, supported by bike lanes, bus lines, and nearby trolley access. Leasing Impact: Continues to attract service-based tenants and experience-driven retail concepts. Strong Local Identity North Park’s unique blend of historic architecture and contemporary culture draws a loyal and diverse local population. Leasing Impact: Tenants with authentic brand presence and community alignment are especially well-positioned for success. Downtown 1. Vacancy and availability remain high, over 60%, but net absorption has turned positive for the first time in years. 2. Asking rents are softening, with new deals trending closer to ~$32/SF. 3. In a fluid market, landlord success depends on flexibility and strategic tenant improvements. Major Market Considerations Horton Plaza Redevelopment Delays The transformation of Horton Plaza into a tech-forward campus with supporting retail has experienced repeated delays and tenant withdrawals. Leasing Impact: Ongoing uncertainty surrounding this high-profile project continues to affect leasing momentum and investor sentiment in the surrounding area. 4th Avenue Promenade Inconsistency The pedestrian-focused 4th Avenue Promenade has faced intermittent closures due to infrastructure challenges. Leasing Impact: Unstable activation patterns have created inconsistent foot traffic, contributing to operational difficulties and slower lease-up along the corridor. Rising Mixed-Use Identity Across the city’s densest neighborhoods, residential growth is accelerating, with over 60 active or proposed projects, many tied to mixed-use retail formats. Leasing Impact: While near-term challenges persist, the growing residential base supports a stronger long-term outlook for well-positioned retail spaces. Active Leasing Highlights Six high-profile retail spaces are currently available in prime Downtown San Diego corridors: ● 422 Market Street ● 726 Market Street ● 802 5th Avenue ● 820 5th Avenue ● 818 6th Avenue ● 871 G Street Case Study: Revitalizing Downtown Spanning over one million SF, Horton Plaza was initially mapped to be a catalyst for a new, reimagined downtown San Diego. The mixed-use office redevelopment fizzled into foreclosure after leasing absorption remained absent, construction stalled, and the market deteriorated, causing several downtown office towers to sell well below asking price. Stockdale Capital purchased the former Westfield mall redevelopment for $175 million in 2018, aiming to attract office tenants and make the space more appealing to their target demographic. During their seven-year holding period, the privately owned REIT firm invested nearly $550 million. Construction plans evolved throughout ownership. While San Diego is one of the biggest biotech and life science hubs in the nation, demand is typically concentrated North of Downtown. Stockdale took a gamble, dedicating the former Nordstrom sector of the plaza to draw in biotech tenants outside of their traditional corridor, but the demand wasn’t there. In 2023, 850 apartments were proposed to be added to the development, but the residential component failed to progress beyond the planning stage. The following year, the developer announced several ground-floor retail tenants for the project, including Sprouts Farmers Market and Shake Shack, but ran out of time and money to fill the remaining 770,000 SF. Despite being close to completion, Stockdale defaulted in Q1 2025 on its $351 million redevelopment loan from AllianceBernstein, which then initiated the foreclosure process in February. After being given 90 days, until May 7, Stockdale ultimately failed to catch up on payments. Moving to take back the property, Beacon Default Management, the lender’s trustee, moved forward to sell the property under foreclosure with an auction date set for June 2. The Los Angeles-based development firm relinquished control to Hilco Global, the court-appointed receiver for Horton Plaza, prior to the auction. Investor confidence didn’t seem to waver as SCP Real Estate Opportunities Fund II, with a net worth estimated at over $700 million, was 50% larger than its last predecessor, with its sole purpose to transform distressed properties up and down the West Coast. As for The Campus at Horton, its next chapter will depend on whether new ownership can re-envision the site in a way that better aligns with the backdrop of a volatile downtown office market. Even financially unconstrained projects face an uphill battle as tenant absorption and elevated vacancy pressures persist. While Class A properties and a recent uptick in sales activity offer glimmers of stability, a full recovery remains elusive.

Josette Odgers

Associate

9/5/25

Q225 | Multifamily Market Report | San Diego, CA

Q2 2025 San Diego Multifamily Market Report Highlights San Diego’s apartment market is in a unique spot—while demand has surged since mid-2024, the past three quarters have seen the strongest net absorption since 2021. 796 units were absorbed in Q2 2025. Economic strain among renter households remains a key theme in San Diego, with property managers anticipating tough quarters ahead. Without a meaningful shift in demand, rent growth is unlikely to rebound to historical norms in 2025. Supply is expected to exceed demand in 2025, likely pushing vacancy rates above the long-term average. San Diego Demographics Unemployment Rate: 4.6% Household: 1,199,868 Current Population: 3,312,846 Median Household Income: $109,404 Market Performance San Diego’s apartment market continued to exhibit strong demand in Q2 2025, marking the third consecutive quarter of robust net absorption—levels not seen since 2021. This leasing momentum helped keep the overall vacancy rate flat at 5.4%, even as new inventory was added, including 1,900 units delivered year-to-date. However, this strong demand is largely incentive-driven, with approximately 30% of properties offering concessions to fill units. Despite solid absorption, rent growth remained muted, with 12-month asking rents up just 0.3%, well below historical norms. Rent pressures were particularly evident in luxury properties, which posted a vacancy rate of 9.1%, reflecting ongoing affordability challenges and elevated competition. Meanwhile, rents declined year-over-year in several core submarkets, including Downtown, UTC, and Balboa Park. As developers push forward with additional deliveries—3,900 units expected by year-end—the market continues to face headwinds in achieving pricing power, even in the face of elevated leasing activity. By the Numbers Sales Volume: $637M Cap Rate: 4.7% Market Sale Price Per Unit: $401K Vacancy Rate: 5.4% Rent Growth: 0.3% Market Asking Rent Per Unit: $2,528 Units Under Construction: 9.974 Units Delivered: 866 Units Absorbed: 796 | Q2 2025 | Source: CoStar Group, Inc. Effective Rent Source: RealPage Under Construction Source: CoStar Group, Inc. Construction across San Diego remained active in Q2 2025, with 10,000 units (3.5% of inventory) under construction and 3,900 market-rate units set to deliver by year-end. While this aligns with historical averages, it still falls short of the 15,000 units/year needed to address long-term housing shortages. Developers face steep hurdles—including lengthy entitlements, high soft costs, and strong opposition to density—which often delay or derail projects. New supply continues to skew toward smaller units, deepening challenges for growing renter households. Sales Q2 2025 marked continued momentum in San Diego’s multifamily investment market, signaling recovery from early 2024’s cyclical low, when only 40 market-rate properties traded—well below the pre-pandemic average of 140. Over the past 12 months, $3.2 billion in assets changed hands, exceeding the decade average of $2.9 billion. Investor sentiment has improved following the failure of a proposed rent control ballot measure in late 2024, though challenges like tenant protections and permitting complexity still weigh on value-add strategies. Cap rates generally range between 4.25% and 5.5%, with higher-end coastal properties on the low end. Notable transactions included Nuveen and Pacific Housing’s Q1 2025 acquisition of Teresina Apartments in Chula Vista for $183 million at a 5% cap rate. Buyers continue to be drawn by San Diego’s life sciences growth, strong tech presence, and stable fundamentals, with expectations of stronger rent growth through 2027 supporting optimism in the second half of the year. Sales Volume & Market Sale Price Per Unit Source: CoStar Group, Inc. Submarket Highlights Source: CoStar Group, Inc. Market Asking Rent Per Unit Market Asking Rent Growth Vacancy Rate North County $2,542 1.0% 4.4% Chula Vista $2,457 0.4% 6.5% Downtown $3,135 -0.8% 10.8% La Jolla/UTC $3,213 -2.8% 4.4% North Shore Cities $3,569 -1.0% 3.7%

Q225 | Industrial Market Report | San Diego, CA

Q2 2025 San Diego Industrial Market Report Key Findings The City of San Diego broke ground on the largest airport redevelopment project in Otay Mesa, which will facilitate international trade and create a $1.5 billion impact on the region. The ﬁrst phase is expected for completion by year-end. Flex properties now account for 60% of sublet space across San Diego, which was previously accounted for by logistics and manufacturing facilities. The largest sale in Q2 2025 occurred in Kearny Mesa, a 202,547 square foot ﬂex property that traded for $80 million in June. By the Numbers Sales Volume: $265M Average Sale Price Per SF: $324 Cap Rate: 6.2% Vacancy Rate: 9.3% Average Market Asking Rent Per SF: $22.47 SF Under Construction: 2.1M SF Delivered: 1.1M SF Absorbed: -1.1M | Q2 2025 | Source: CoStar Group San Diego Demographics Unemployment rate: 4.6% Current population: 3,312,145 Households: 1,199,544 Median Household Income: $109,200 The San Diego metro beneﬁts from employment opportunities in the military, innovation, and tourism sectors. The tourism industry is one of the strongest segments, recording a $22 billion economic impact for the 2024 ﬁscal year. San Diego is also home to more than 80 research institutions, which are prominent in the metro’s Golden Triangle area. The Golden Triangle also beneﬁts from proximity to the University of California, San Diego. Market Performance San Diego’s industrial market continues to struggle with decreased absorption levels, with -1.1 million square feet absorbed in the second quarter. Logistics buildings over 100,000 square feet recorded a slowdown in activity with the vacancy rate increasing 100 basis points year-over-year. While absorption has been consistently slow, demand is returning to the market. The majority of demand has been driven by multi-tenant, small-bay properties under 50,000 square feet. Demand for these facilities has been highest in the Escondido, El Cajon, and Central San Diego submarkets. Due to the increased demand, the vacancy rate for small-bay properties in these submarkets is 2.5%. Subleasing is also a main driver of activity in the metro. There has been about 5.1 million square feet sublet over the past year, with Otay Mesa and Carlsbad recording the highest level of industrial sublet space. Construction Otay Mesa accounts for more than half of the industrial construction on the way, with 20% of this space available. The submarket’s inventory increased by 50% as operators ﬁnd the area appealing for its proximity to the border. Meanwhile, ﬂex properties record one of the greatest additions as 2.3 million square feet of space was delivered over the past year. Mostly all of these additions were added in the UC San Diego area. Sales As transaction activity has remained low, cap rates have recorded an uptick to around 5 and 6%. Institutional deals are trading in this range, while mid- and small-bay properties note cap rates in the low 5% range. This is an uptick from prior levels as buildings were trading around 3% cap rates in early 2022.

Q225 | Retail Market Report | San Diego, CA

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

Q225 | Retail Development Market Report | San Diego, CA

Q2 2025 San Diego Retail Development Market Report San Diego Retail Activity Available space increased by more than 600,000 square feet during the ﬁrst quarter, which is the greatest amount of space added to the market in ﬁve years. The uptick is due to the rise in store closures and bankruptcies. Smaller spaces are in high demand as service-related and dining tenants made up 40% of leasing volume within the past year. Pacific Beach Market Overview The Paciﬁc Beach submarket recorded a vacancy rate of 4.9% at the end of Q2 2025. Vacancy here has been on the rise since the end of 2024, due to negative absorption unable to keep up with new deliveries. About 2,000 square feet delivered over the past year, which led Paciﬁc Beach to note 170,000 square feet of available space during the second quarter. There is no space under construction as of Q2 2025, and market rents are $40.00 per square foot. Ocean Beach Market Overview Ocean Beach recorded 4,300 square feet of net absorption in the second quarter, dropping the vacancy rate to 3.2%. Diﬀerent retail subtypes in the submarket also note low vacancy levels, with power centers at no vacancy and general retail at a 3.0% vacancy rate. However, vacancy may see an uptick as 7,200 square feet is on the way. Across the submarket, market rent is at $37.00 per square foot. Rent growth in Ocean Beach changed by 2.9% year-over-year, outpacing San Diego which grew by 1.5%. Market rent is strongest in neighborhood centers at 4.7%, followed by strip center properties at 2.2%. La Jolla Market Overview The La Jolla submarket recorded stable performance metrics with vacancy at 4.5% at the end of Q2 2025. Absorption has outpaced deliveries, with 19,000 square feet absorbed compared to 10,000 square feet in deliveries. The submarket currently notes 2.1 million square feet in inventory, with 4,500 of space under construction across the submarket. Similar to Ocean Beach, rent growth is also outpacing the San Diego metro at 4.1%. Market rent here is at $57.00 per square foot, compared to the metro’s rent at $36.55 per square foot. Pacific Beach Development Pipeline Vela Project—970 Turquoise St 23-story tower, exceeds 30-foot coastal height limit Includes 74 residential units (10 aﬀordable), 139 hotel rooms, and 7 levels of parking Proposed by Kalonymus LLC, a Los Angeles developer Legal & Approval Details: Uses California Density Bonus Law to bypass local zoning rules. Ministerial approval process—no public hearings required. Concerns & Opposition: Residents worry about infrastructure strain, traﬃc, and emergency response limits. Oﬃcials like Mayor Todd Gloria and Senator Catherine Blakespear oppose the project. Seen as a misuse of aﬀordable housing law. Rose Creek Village—2662 Garnet Ave Rose Creek Village received a $4 million loan approval from the San Diego City Council in August 2024 The ﬁve-story project will include 77 aﬀordable housing units (59 studios, 18 permanent supportive housing units) Proposed by Kalonymus LLC, a Los Angeles developer The building will exceed the 30-foot height limit, sparking community concerns Plans also include two levels of underground parking and ground-ﬂoor commercial space Balboa Avenue Transit Center—870 Garnet Ave Balboa Avenue Transit Center opened in November 2021 as part of the Blue Line Mid-Coast Trolley extension Located between Interstate 5 and Morena Boulevard San Diego approved the Balboa Station Area Speciﬁc Plan in September 2019 to support transit-oriented development and connectivity in Paciﬁc Beach and nearby areas These eﬀorts aim to address housing and infrastructure needs, while also raising concerns about building height and neighborhood character Lot sold for $4.3 million in April 2025 as a development play with residential units and retail at the base level Coastal Development Permits: 1913 Paciﬁc Beach Drive and 2120 Oliver Ave Proposal to demolish an existing single dwelling unit and construct two three-story single dwelling units, each on its own pre-subdivided lot Recent applications include a proposal at 1913 Paciﬁc Beach Drive for demolishing an existing single dwelling unit to construct two three-story single dwelling units on pre-subdivided lots Application for a Coastal Development Permit for a project within the Coastal Overlay Zone Ocean Beach Development Pipeline Current Market Conditions Total Housing Units in a 1 Mile Radius: 10,440 40 multi-unit executed ADUs in the last 4 years Current retail vacancy rate in Ocean Beach: 1.26% Average Newport Ave on market asking rent: $3.20 SF Proposed Development 2169 Bacon St—15,000 SF, 11 units 1400 Rosecrans St—56,000 SF, 56 units 3747 Midway Dr—50,000 SF, 62 units 3500 Sports Area Blvd—250,000 SF multi-tenancy Ocean Beach Pier—Attracted roughly 500,000 visitors annually as the longest concrete pier on the West Coast. New development estimated to be permitted by the end of 2025. 1984 Sunset Cliﬀs Boulevard—Property set to be demolished and replaced with high density housing development. Point Loma Avenue—20-unit apartment building 4705 Point Loma Avenue—Demolishing existing retail structure to construct two four-unit buildings as part of an aﬀordable housing density project. La Jolla Blvd Development Pipeline Adelante Townhomes—5575 La Jolla Blvd Type: 14-unit residential townhome development Details: This project involves the demolition of an existing oﬃce building to construct a two-story residential complex with a basement level, covered parking, and roof decks totaling 21,485 square feet. The development includes 13 market-rate units and one aﬀordable unit for low-income residents. Notably, the project does not include ground-ﬂoor retail, which has been a point of contention due to the La Jolla Planned District Ordinance requiring retail on the ground ﬂoor in this zone. Gravilla Townhomes—6710 La Jolla Blvd Type: 12-unit condominium development Details: This project proposes the construction of a two-story building with 12 for-sale condominiums, including one aﬀordable unit for very low-income residents. The development also includes 13 below-grade parking spaces utilizing car stackers. 5721 La Jolla Blvd Currently under construction

Amara Bagabo

Associate

7/11/25

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