More evidence that San Diego is an unusually resilient retail market: there has been a recent a surge of interest in big-box spaces, specifically in lower-priced residential submarkets, according to CBRE data. That is challenging the assumption that such space is becoming a thing of the past.

A considerable amount of vacant big-box space was brought onto the San Diego market in the first half of 2018, with close to 100K SF of that due to the bankruptcy of Toys R Us, according to CBRE's San Diego County Big Box Retail Report for the first half of 2018, which was released recently.

There are also several additional Toys R Us locations in the county that are expected to come online this year as they go through the final phases of bankruptcy, the report said.

In the current retail climate in most places, such an influx of big-box space would count as bad news. But in metro San Diego, new tenants are showing interest in some of these spaces already, mitigating the fear that they will sit vacant.

During the second quarter, Aldi took two spaces in the market totaling about 53K SF, while 24 Hour Fitness took two spaces for a total of 68K SF. Other retailers taking San Diego-area big-boxes during Q2 included Target, Dollar Tree, Hobby Lobby and Punch Bowl Social.

“San Diego is a strong retail market, yet physically constrained with very limited new retail development potential," CBRE First Vice President Joe Yetter said. "Therefore our supply of quality sites is limited.

“As these big-box sites — such as Toys R Us — come available, we're seeing new or even existing tenants in the market leasing the space quickly," Yetter said. "The tenants that we're seeing fill the spaces are predominantly discount retailers, specialty grocery stores and fitness tenants.”

Off-price or discount/value retailers, led by Dollar General and TJ Maxx, are experiencing growth and plan on expanding into more than 40M SF nationwide, according to CBRE. With such expansions targeting traditional big-box vacancies, these players may ultimately lessen the impact of e-commerce moving forward, the report said.

New development is part of the trend as well. The neighborhood center Millenia Town Center will open in late 2018 in Chula Vista, and will include over 100K SF of retail. The property is an example of discount and off-price retailers expanding their presence, especially in lower-income areas.

Otherwise, retail fundamentals are relatively strong in San Diego.

"The San Diego retail market remains strong, with record-high asking rates and increased leasing activity,” Yetter said.