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Consumer Sales Growth Provides Stability to Overall U.S. Retail Real Estate Market, According to Jones Lang LaSalle

San Diego retail real estate market still bottoming out

SAN DIEGO, Sept. 11, 2012 — The U.S. retail real estate sector continued to show signs of stability in the second quarter of 2012, staving off short-term economic and political uncertainty. The modestly positive outlook was led by major markets with strong demographic and population growth, a lack of new, high quality supply and improving leasing velocity, according to Jones Lang LaSalle

“While San Diego’s retail real estate market has shown only small gains to date, the barriers to entry, which include geographic constraints of the county as well as the scarcity and price of land, suggest a positive future.” said Craig Killman, Senior Vice President and West Coast Retail Market Lead for Jones Lang LaSalle Retail. “It’s worth noting that core properties, both along the coast and through Mission Valley, remain strong with vacancy rates below the county’s average of 5.1 percent.”

San Diego Retail Leasing Highlights
San Diego’s retail market is still bottoming out, and forecasts call for only incremental improvement to absorption through 2016. While vacancy levels in San Diego remain elevated, healthy absorption during the latter part of 2011 helped decrease the vacancy rate 60 basis point, year over year. However, since much of the desired space is already occupied, for demand to increase appreciably, deliveries of new retail space must increase. 

Retail real estate inventory expected to be under construction over the next 12 months totals 521,000 square feet, but new retail real estate deliveries expected over that same amount of time total only 12,865 square feet.

Retail rents deteriorated significantly in San Diego after the recession, but should begin to pick up modestly by the end of the year. Rents are not expected to return to their previous peak level until 2016. Asking rents currently average $20.98 per square foot.

“Long-term, our market will see growth in league with the national average, driven largely by military spending, education and tourism,” said Eli Gilbert, Senior Research Analyst for Jones Lang LaSalle in San Diego. “Personal income in the San Diego metro area has risen more than 10 percent from the bottom of the economic cycle, which has driven retail demand in the last few quarters.”

National Retail Leasing Highlights
For the third consecutive quarter, vacancy remained flat at 6.9 percent, kept stable by net absorption of slightly more than 2.8 million square feet, modest compared to previous quarters. Deliveries were relatively low as well, coming in at 7.2 million square feet. While vacancy rates ended the quarter approximately 50 basis points below their peak, they were still significantly higher than their trough in 2006.  Tenants currently remain in control and should continue to be through 2013.

Additional retail leasing highlights include:

  • Limited new supply will continue to put downward pressure on vacancy rate for some time. 
  • National retail rents fell 1.7 percent year over year and inched down 0.5 percent in the second quarter.
  • Power center rents in major markets continue to fall the most across retail property subtypes, declining 3.0 percent year over year, as landlords offer attractive rates to tenants filling vacant spots. 

Local Retail Leasing Scene
While national retail rents continue to decline, several markets are seeing year-over-year growth including Miami (13.2 percent), Washington DC (2.6 percent), Tampa (1.9 percent) and Boston (1.1 percent). Strong demographics are expected to push up rent growth in those markets with more immediate population booms – at least until development makes a concerted comeback.  Markets with the highest projected rent growth (by percentage) include Raleigh (averaging 4 percent annually, through 2016), Phoenix (averaging 4.2 percent annually through 2016 percent) and Las Vegas (projected to be as high as 8.5 percent in 2015).

Several other core financial, energy and trade-centric markets should show signs of improvement in the next few quarters, thanks to stronger absorption, low or declining vacancies and a robust local economic outlook. Their solid infrastructure, promising demographics and positive leasing performance makes them frontrunners for retail occupancy growth.  Regions with the most upside include Houston (6.5 percent vacancy and 368,779 square feet of year-to-date net absorption), Miami (4.0 percent vacancy and 290,140 square feet of year-to-date net absorption), San Francisco (2.8 percent vacancy and 82,535 square feet of year-to-date net absorption), Boston (4.4 percent vacancy and 1,225,394 square feet of year-to-date net absorption) and New York (2.2 percent vacancy and 45,428 square feet of year-to-date net absorption). 

Retail Capital Markets Highlights
“Retail real estate sales in the second quarter were a strong $11.6 billion following a remarkable $12.5 billion in Q1,” said Margaret Caldwell, Managing Director and co-leader of Jones Lang LaSalle's Retail Capital Markets group. “Los Angeles, South Florida and Chicago saw the greatest transaction volume at $5.2 billion as money continued to chase high-density, heavily populated growth areas.”

Many in the industry expect quite a bit of new product – including the coveted Class A quality centers -- to be marketed for sale in the coming months, added Caldwell.

Additional retail real estate investment highlights include:

  • DDR, Blackstone and Starwood Capital Group were the largest buyers, accounting for approximately $4 billion in acquisitions in the second quarter.
  • Power centers saw the biggest increase in transaction volume, from $845 million in Q1 2012 to $1.61 billion in Q2 2012.
  • Average cap rates fell to 6.96 percent from a previous quarter of 7.3 percent. 

Jones Lang LaSalle is a leader in the San Diego commercial real estate market. The firm employs approximately 120 of the area’s most recognized industry experts offering services in brokerage, capital markets, facility management and project development services. In 2011, the San Diego team completed 3.74 million square feet in lease transactions and directed $34.5 million in project management and currently leases and/or manages more than 5.5 million square feet in the market.

Jones Lang LaSalle Retail successfully manages the largest third-party retail portfolio in the country. Our portfolio is comprised of unique clients and a broad range of retail properties including regional shopping centers, lifestyle centers, strip malls, power centers, transportation facilities and universities along with redevelopment and mixed-use projects. Jones Lang LaSalle offers a full array of retail services to our clients, including property management, financial reporting, leasing, tenant coordination, specialty leasing, marketing, research, development and receivership.  For more information on Jones Lang LaSalle Retail, visit

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About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices.  The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $47 billion of assets under management. For further information, please visit