Reprinted from the San Diego Business Journal

The Future of Development in the South Bay
By Michael J. Seiber
First Vice President
Flocke & Avoyer Commercial Real Estate

With a number of large-scale residential developments planned for the eastern Chula Vista, Otay Ranch and Otay Mesa areas, and substantial home-building maintaining a fast pace, San Diego's South Bay community is continuing to be a desirable area for retailers to consider.

The level of housing construction that has transpired over the past two years has increased dramatically in the area east of Interstate 805, which, in turn, has generated stronger retail demand. The master-planned elements of each new South Bay community provide limited retail opportunities that are intended to satisfy the future demand of the larger consumer base.

These retail sites will not be built until the residential areas surrounding the properties begin to mature, which is good news for existing shopping centers, where more and more vacant space is being leased at higher rental rates.

It has been estimated that this region will build more than 2,000 homes per year, which will place an even higher demand on all existing retail projects as there will be a limited amount of new, anchored retail centers built in this region over the next few years.

Synergistic Retail Development
Master-planned communities such as EastLake will benefit greatly not only due to the mixed-use nature of their developments, but because EastLake offers the opportunity to create a synergistic retail environment with the surrounding commercial developments. EastLake's proposed retail projects are located on main arteries that can accommodate a variety of retailers, however, some of the proposed communities in the South Bay anticipate locating their retail components in more of a "village" fashion, which places the projects in the middle of the residential areas.

In the short term, this will leave a void of retail development that can offer easy access for retailers and an ability to draw from a wider trade area.

As a result, existing retail space east of I-805 is characterized by lower vacancy rates and higher achievable rents due to the increased residential base and consumer needs. Retail rents in this area are likely to go higher, boosted by the activity of national, regional and local retailers researching the trade area.

Added Element Of Highway 125
It is anticipated that the strength of the South Bay development boom will continue as more of the communities are built-out over the next 10-20 years. With the added element of Highway 125 extending from Otay Mesa to La Mesa (proposed to be completed by 2003), a tremendous amount of San Diegans will continue to make the South Bay community their home.

This growth will dictate stronger competition among retailers for what little space will be available in existing centers until new projects are built.