While San Diego office headlines stall at 14% vacancy and industrial absorption goes negative, retail has been doing something neither of those asset classes managed in 2025: holding steady.
San Diego retail vacancy ended 2025 at 5.0% — unchanged from the prior quarter, with positive net absorption and rents essentially flat. For an asset class that was supposed to be structurally challenged by e-commerce, those are surprisingly solid numbers. Cushman & Wakefield's Q1 2026 cross-check puts retail vacancy at 5.5% — still among the tightest of the three major commercial asset classes in the county.
The story here isn't excitement. It's durability. And for tenants, investors, and landlords in San Diego retail, durability has its own set of implications.
The Numbers (Q4 2025 / Q1 2026)
CBRE San Diego Retail figures are Q4 2025, the most recent full dataset available. Cushman & Wakefield Q1 2026 MarketBeat provides the current cross-reference.
Vacancy: 5.0% at Q4 2025 year-end, unchanged from Q3 2025. Cushman & Wakefield's Q1 2026 reading puts it at 5.5% — the slight difference reflects methodology and tracked inventory. Both figures sit well below the long-run historical average for retail vacancy, and well below office vacancy in the same market. Asking rents: $2.34 per square foot NNN, down $0.02 from Q3 2025. Effectively flat. There's no meaningful rent growth story here, but there's also no deterioration — which in the context of 2024–2025's broader economic uncertainty is its own kind of result. Net absorption: Positive 27,000 square feet in Q4 2025, a sharp reversal from negative 272,000 square feet in Q3 2025. The Q3 swing was large — a single quarter of significant move-outs — and Q4 corrected back to positive. The underlying trend is stable demand, not a boom or a bust. New supply: 94,000 square feet delivered in Q4 2025, up from 15,000 square feet in Q3. New retail construction in San Diego remains constrained by land cost and entitlement timelines — which is a key structural reason vacancy stays low. Investment sales: $263.6 million in Q4 2025 transaction volume, down from $458.8 million in Q3 2025. Quarter-to-quarter investment volume is lumpy and the Q3 figure was unusually high. The Q4 number reflects a more typical pace.
Why San Diego Retail Is Holding Up
The structural narrative around retail has been negative for a decade — e-commerce displacement, store closures, dead malls. That narrative is real in some markets. In San Diego, several factors have insulated the retail market from the worst of it.
Supply has been structurally constrained for years. San Diego County's coastal geography, high land costs, and slow entitlement process mean meaningful new retail supply rarely gets built. When supply doesn't grow, vacancy stays low even when demand softens. The 94,000 square feet delivered in Q4 2025 is a fraction of what a comparably sized inland market would see. The tenant mix has evolved. The retailers who are leasing space in 2025–2026 are not the ones who got displaced by Amazon. They're service-oriented — medical and dental, fitness, food and beverage, personal services, specialty grocery — businesses that require a physical presence and can't be replicated online. San Diego's demographics support that tenant mix: high household incomes, population density in coastal submarkets, and consistent tourism-driven foot traffic. The failed concepts cleared quickly. The wave of retail closures from 2020–2022 — national chains, fast fashion, casual dining casualties — has largely been re-absorbed. Vacancy spiked and then came back down. The 5% figure today reflects a market that worked through its distress and restabilized.
What This Means If You're a Tenant
San Diego retail is not a tenant-favorable market the way industrial is right now. 5% vacancy means landlords have options, and they know it.
That said, specific situations create leverage:
Second-generation space. When a tenant vacates mid-lease or a national chain closes a location, landlords often need to move quickly to avoid prolonged vacancy. Purpose-built second-gen space — a former restaurant, a former gym, a former medical suite — can be leased at below-market rates if the buildout suits your use. Watch for these opportunities. Suburban vs. coastal pricing gap. Coastal San Diego retail — La Jolla, Del Mar, Encinitas, Little Italy — commands premium rents and has minimal vacancy. Inland and suburban submarkets — El Cajon, Santee, Chula Vista — are softer, with more negotiating room and lower asking rents. If your concept works in either location, the cost difference is material. Lease structure matters more than asking rent. In a tight retail market, the negotiation often shifts from rent to structure — lease term, renewal options, percentage rent clauses, co-tenancy provisions, exclusivity, assignment rights. Getting the structure right protects you in ways that a $0.10/sf rent reduction doesn't. Don't anchor to national retail comps. San Diego retail rents are higher than most inland California markets and much higher than national averages. If your underwriting is based on what you've heard retail rents should be, recalibrate to the local market before you start touring.
What This Means If You're an Investor
San Diego retail offers a defensive profile — not exciting cap rates, but durable income in a supply-constrained market. A few considerations for buyers:
Neighborhood and community centers outperform. The retail that has held up in San Diego — and nationally — is necessity-based: grocery-anchored centers, medical-dental clusters, service retail. These are the assets worth underwriting. Power centers and enclosed malls are a different thesis entirely. $263 million in Q4 investment sales reflects continued buyer interest even as rates have stayed elevated. Retail cap rates in San Diego for quality neighborhood centers have compressed back toward 5.5–6.5% depending on anchor credit and location — which leaves limited room for value-add buyers but validates core-hold strategies. Net lease single-tenant assets — QSR, medical, auto service — trade at premium pricing in San Diego because of the land scarcity story. Cap rates on well-located single-tenant net lease assets in coastal submarkets can run below 5%. The income is durable; the yield is low. Watch the redevelopment angle. Some aging retail centers in infill San Diego locations have more value as mixed-use redevelopment opportunities than as operating retail. If you're underwriting a tired strip center in a coastal or urban submarket, run the land value analysis alongside the income analysis.
What This Means If You're a Landlord
5% vacancy and flat rents are a comfortable position — but comfortable positions require active management to maintain.
Your leverage is real but not unlimited. Vacancy is low, but the tenants you want — credit tenants, national concepts, established local operators — have enough options to walk from a deal that doesn't work for them. Price competitively, respond quickly, and don't let good prospects sit. Lease expirations in the next 24 months need attention now. The retailers most likely to downsize or exit are the ones facing rent resets at above-market levels from leases signed during tighter periods. Know which of your tenants is in that position and start the renewal conversation early. Capital investment in common areas pays. In a market where tenants have some choice, the centers that retain tenants and attract new ones are the ones that feel current — updated facades, clean parking, good lighting, functional signage. Deferred maintenance in a 5% vacancy market is a choice. In a 10% vacancy market, it becomes a crisis. Co-tenancy clauses are a real risk. If you have anchor-dependent small shop leases with co-tenancy provisions, know exactly what triggers them and which tenants could exercise them. Anchor closures — even in a healthy retail market — can cascade through a center's small shop occupancy faster than landlords expect.
The Submarket View
San Diego retail submarkets run materially different rent and vacancy profiles:
- La Jolla / UTC — Premium coastal retail, minimal vacancy, rents well above county average. Strongest demand from luxury, medical, and upscale food and beverage.
- Little Italy / Downtown — Tourism and residential density drive consistent foot traffic. Mixed performance by block; street retail is strong, older inline space is softer.
- Encinitas / Carlsbad / Del Mar — Coastal North County lifestyle retail. High household incomes, strong local operators, constrained supply. Rents competitive with core San Diego.
- Mission Valley — Regional retail corridor with significant big-box and power center inventory. More vacancy exposure than coastal submarkets; more landlord flexibility.
- Chula Vista / South Bay — Growing residential base driving demand for service retail. Rents lower than coastal markets; opportunity for operators who follow rooftop growth.
- East County (El Cajon, Santee, Lakeside) — Most affordable rents in the county. Higher vacancy in older centers; strong demand for necessity retail serving dense residential areas.
The Bottom Line
San Diego retail is the quiet performer of the 2025–2026 commercial real estate cycle. While office works through a structural reset and industrial digests a demand reversal, retail is doing what good retail markets do: holding occupancy, maintaining rents, and absorbing new supply without drama.
That's not a reason for complacency — lease structures, submarket selection, and tenant credit quality still matter enormously. But for investors looking for durable income in a supply-constrained market, and for tenants and landlords managing their positions, the San Diego retail fundamentals are about as solid as you'll find in the current environment.
Working through a San Diego retail lease, acquisition, or disposition? I offer free 30-minute consultations — no sales pitch, just a direct conversation about your deal. Book a time here.
*Sources: CBRE San Diego Retail Market Figures, Q4 2025 (most recent available). Cushman & Wakefield San Diego MarketBeat, Q1 2026.*
*Data reflects market-level averages. Individual submarket and property conditions vary. Verify current comps before making leasing or investment decisions.*