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Downtown retail vacancy dips to low 6.6%, fueled by steady demand, diminishing space options

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Burnham Real Estate reports that downtown San Diego retail vacancy has dropped more than a full percentage point during the first six months of the year, currently standing at 6.6 percent following 39,428 square feet of year-to-date net absorption.

According to the Burnham Urban Retail Group, demand for retail space shows no sign of slowing, even though condominium construction has cooled. Instead, the group reports that increased hotel, office and apartment activity is fueling near- and long-term interest by retailers eager to capitalize on downtown's urban lifestyle.

"Retailers want to be downtown to be in the center of activity," said Bill Shrader, senior vice president and principal with the Burnham Urban Retail Group. "Downtown San Diego has made the successful transition to a vital urban core with thousands of new residential units, new hotels and new office space. Retailers recognize that a downtown location puts them in the midst of a captive and shopping-friendly market."

According to a recent Burnham report, the downtown retail market totals over 4.5 million square feet of space, just 302,821 square feet, or 6.6 percent, of which is vacant. This is a decrease from summer 2005, when the market totaled 4.37 million square feet of inventory with 7.8 percent vacancy.

"The new space that has come on line is being absorbed quickly," Shrader said. "With little new space breaking ground this year and next, and with construction taking over two years, the market could see a notable lack of supply by late 2007 and 2008. The postponement and cancellation of new projects has caused the majority of the reduction in planned retail space this year." Currently, the Burnham study shows just 459,791 square feet of new retail space planned or under construction, compared to 1 million square feet a year ago.

The Gaslamp District in downtown San Diego added several new tenants in recent months, including Volcom, Soho Lab by Skechers, G-Star, Helio and Oakley. "The Gaslamp area -- particularly along Fifth Avenue -- is hotter than ever," said Corinna Gattasso, an associate vice president with Burnham Urban Retail Group. "The block is hip and trendy, with retailers actively vying for locations. With vacancy at just 4 percent, opportunities, especially on Fifth Avenue, are increasingly scarce."

The Horton Plaza area, the largest downtown retail market with 969,375 square feet of inventory -- most of which is inside Horton Plaza itself -- reports the lowest vacancy rate of all downtown retail neighborhoods at just 0.8 percent.

The East Village -- which has seen an increase in inventory since the completion of Petco Park - reports the highest vacancy rate of all downtown submarkets, at 15.1 percent based on 716,064 square feet of existing retail inventory.

"This is a temporary upswing as new space in this area is leasing well, with the synergy of new residential, the recent completion of TR Office and TR Retail, and of course, the ballpark," Gattasso said. "There is more retail under way along with Retail on J at the Park, which will add 250,000 square feet of office space, 184 condominium units and 125,000 square feet of retail space."

Other downtown retail highlights include Little Italy, which has emerged as a residential neighborhood and boasts restaurants, cafes, pubs and services. This neighborhood reports 4 percent vacancy based on 405,723 square feet of retail inventory, and is followed by the Marina District, with 5.1 percent vacancy based on 428,694 square feet; Cortez Hill, with 10 percent vacancy based on 124,274 square feet; and Columbia, with 8.7 percent vacancy based on 318,700 square feet.

The Burnham Urban Retail Group report has expanded this year to include the uptown area, which includes Bankers Hill, Hillcrest, Mission Hills and North Park. "Totaling 1,663,144 square feet of retail space with 9 percent vacancy, this area is poised for strong retail growth due to its central location, proximity to downtown and strong residential base," said David Maxwell, an associate with the Burnham Urban Retail Group.

"These established neighborhood communities are seeing a wave of mixed-use redevelopment in keeping with the City of Villages concept that has been endorsed and promoted by the city of San Diego," said Maxwell. "The uptown area is definitely a market to watch over the next few years."

The largest of the uptown markets is North Park, which totals 650,086 square feet with 7.4 percent vacancy. Hillcrest is next, with 630,927 square feet and 9.1 percent vacancy, followed by Bankers Hill, with 191,331 square feet and 15.8 percent vacancy, and Mission Hills, with 190,800 square feet and 7.3 percent vacancy.

The Burnham Urban Retail Group offers a range of mixed-use retail leasing and advisory services to clients throughout the West, with expertise in new and revitalizing urban areas. The group is a team within Burnham Real Estate.

Headquartered in San Diego, Burnham Real Estate has six regional offices in Southern California and one in Las Vegas. Company services include traditional brokerage along with corporate services, asset services, capital markets, advisory services, strategic corporate consulting and project management. Visit www.burnhamrealestate.com.

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