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.