Local retail market shows signs of stabilization as leasing activity grows

San Diego's retail market is showing signs of greater stability as major tenants commit to large spaces while limited new construction keeps supply pressures in check, according to a third quarter report from the real estate brokerage Marcus & Millichap.

The region entered the second half of 2026 with a 5% retail vacancy rate, the third lowest among major West Coast markets. Although San Diego had not matched the improvement in net absorption seen in other Southern California markets through June, several major lease commitments during the first half of the year pointed to continued interest from national retailers.

Bass Pro Shops committed to nearly 150,000 square feet at Grossmont Center in La Mesa, while Whole Foods is taking over a roughly 37,400-square-foot former Best Buy location in Carmel Mountain Ranch.

San Diego's limited construction pipeline also is expected to help keep supply and demand relatively balanced.

The retail vacancy rate increased 20 basis points during the 12 months through June after tenants gave back nearly 200,000 square feet of space. But vacancy declined in two of the region's most available submarkets.

East County's vacancy rate fell 40 basis points to 5.8%, while North County's vacancy declined 20 basis points to 6%. Central San Diego, which accounts for nearly a third of the region's retail inventory, had a 4.1% vacancy rate at the end of June, according to Marcus & Millichap.

The San Diego retail market has significant differences by property type. Vacancy at power centers was 2.9%, while quick-service restaurant properties had a 1.7% vacancy rate. Both figures indicate strong demand for limited available space.

That scarcity could push some retailers and restaurants toward neighborhood shopping centers and other restaurant properties, where vacancy remained in the low-5% range, according to the report.

San Diego's average asking retail rent increased nearly 2% over the year to $28.78 per square foot, Marcus & Millichap said. The increase was driven by single-tenant properties, where rents rose 5.3% to more than $30 per square foot.

Average rents for multi-tenant properties, however, fell 7.5% to about $25 per square foot, the lowest level in nearly three years, according to the report. The lower rents could encourage additional tenants to consider available shopping center space.

Employment growth also is expected to support retail demand. San Diego employers added nearly 10,000 jobs during the first half of 2026 after adding 8,200 positions during the final quarter of 2025.

Health care accounted for much of the recent hiring, while professional and business services employment increased by 2,800 jobs during the first half. Additional hiring by law firms and other professional employers could increase weekday customer traffic around office centers, the brokerage said.

New retail construction remains limited in San Diego. No submarket added more than 25,000 square feet during the 12 months through June, with roughly 50,000 square feet added across the region.

Restaurants and quick-service buildings account for most of the active development pipeline, which represented less than 0.1% of existing retail inventory as of July, Marcus & Millichap found.

A major exception came in August, when Escondido and Costco approved a ground lease that clears the way for Costco to demolish the former Sears building at North County Mall and redevelop the site.

San Diego also remained one of the more active secondary markets for retail investment transactions, according to Marcus & Millichap. Investors have been attracted by the region's limited new supply and potential for increased property performance as vacancy stabilizes.

Single-tenant properties leased to restaurants were among the most frequently traded assets. Quick-service restaurant properties commanded a premium, changing hands for an average of about $2,000 per square foot, with newer properties and sites offering redevelopment potential drawing the highest prices.

In the shopping center sector, sales were concentrated largely outside the city of San Diego, with significant activity along the State Route 78 corridor from Oceanside to Escondido.

Multi-tenant vacancy along the corridor was 6.1%, above the regional average. But supply and demand have remained relatively balanced there for the past two years, limiting changes in vacancy, the brokerage said.

The State Route 78 corridor's average multi-tenant asking rent also has continued to rise while remaining the lowest among San Diego's local submarkets, a combination that could make shopping centers there attractive to investors, according to the report.