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.