GlobeSt.com: Where do San Diego strip centers fall in the retail hierarchy today?

Kobzi: The market is stable for well-located strip because it meets the price point for the private-capital investors and not much of it—if any—is getting built versus regional and neighborhood centers, which is primarily of interest to institutional buyers. Private capital fits that void. Last year, retail in general was the only commercial type in the region that had growth in the number of transactions from 2015 to 2016, and San Diego outpaced not only the US average but also that of Orange County and L.A. This product type diversifies the risk for investors because it's less than 15,000 square feet and it's relatively Internet safe—it has a service orientation along with quick-serve food.

GlobeSt.com: We know regional malls have suffered, but what is happening at the local level with leasing up these strip centers?

Kobzi: Overall, we're at a 5% vacancy rate for the county. We're talking about a totally different tenant; we're talking about services and things that the neighborhood needs. You don't go to a strip center for the experience; you just are getting the services done. You can't buy a haircut online. As long as they're typically 15,000 square feet or less, you're fine—especially if you're in higher-income area and limited competition. You're the service provider for that community.

GlobeSt.com: How are investors viewing strip centers in this market versus other types of retail?

Kobzi: Normally, private capital is most interested in this product type. Rents are stable, cap rates are in the 6 to 6.5 range unless there's a limited feature—limited supply or freeway adjacent; then, cap rates can dive lower into the 5.5 to 6 range.

GlobeSt.com: What else should our readers know about these types of centers?

Kobzi: Pure strip centers aren't being built anymore. They're now ground-floor retail catering to mixed-use, office, residential. Our project at San Diego State features a strip center with retail on the ground level; it's part of mixed-use, service-oriented retail that is there more to serve a specific community or development. The successful ones are filling that void. Every community needs it; not everybody goes shopping to have an experience. The neighborhood strip center provides thet quick and easy service you need.

Kobzi: “We're talking about a totally different tenant [from regional malls]; we're talking about services and things that the neighborhood needs.”

SAN DIEGO—Pure strip centers aren't being built anymore; they're now ground-floor retail catering to mixed-use, office and residential properties looking for daily-needs, service-oriented tenants, CBRE Group Inc.'s retail expert Reg Kobzi tells GlobeSt.com. Kobzi, along with the firm's Joel Wilson and Michael Peterson, recently represented seller 1987 Butler Living Trust in the sale of a 9,840-square-foot strip center here to local buyer Jehan Enterprises, which was represented by Curtis Gabhart of KW Commercial.

The seven-tenant project, located at 3280 Main St., is 83 % leased and is in proximity to the NASSCO Shipyard and the 32^nd street Naval Base, one of the largest in the world. According to VP Wilson, the center's proximity of the base “will provide a consistent customer base for the retailers and strong demand for tenants to lease spaces.”

We spoke with Kobzi about the state of retail strip centers in San Diego and how investors are viewing this market.

GlobeSt.com: Where do San Diego strip centers fall in the retail hierarchy today?

Kobzi: The market is stable for well-located strip because it meets the price point for the private-capital investors and not much of it—if any—is getting built versus regional and neighborhood centers, which is primarily of interest to institutional buyers. Private capital fits that void. Last year, retail in general was the only commercial type in the region that had growth in the number of transactions from 2015 to 2016, and San Diego outpaced not only the US average but also that of Orange County and L.A. This product type diversifies the risk for investors because it's less than 15,000 square feet and it's relatively Internet safe—it has a service orientation along with quick-serve food.

GlobeSt.com: We know regional malls have suffered, but what is happening at the local level with leasing up these strip centers?

Kobzi: Overall, we're at a 5% vacancy rate for the county. We're talking about a totally different tenant; we're talking about services and things that the neighborhood needs. You don't go to a strip center for the experience; you just are getting the services done. You can't buy a haircut online. As long as they're typically 15,000 square feet or less, you're fine—especially if you're in higher-income area and limited competition. You're the service provider for that community.

GlobeSt.com: How are investors viewing strip centers in this market versus other types of retail?

Kobzi: Normally, private capital is most interested in this product type. Rents are stable, cap rates are in the 6 to 6.5 range unless there's a limited feature—limited supply or freeway adjacent; then, cap rates can dive lower into the 5.5 to 6 range.

GlobeSt.com: What else should our readers know about these types of centers?

Kobzi: Pure strip centers aren't being built anymore. They're now ground-floor retail catering to mixed-use, office, residential. Our project at San Diego State features a strip center with retail on the ground level; it's part of mixed-use, service-oriented retail that is there more to serve a specific community or development. The successful ones are filling that void. Every community needs it; not everybody goes shopping to have an experience. The neighborhood strip center provides thet quick and easy service you need.