GlobeSt.com: Which geographical areas in San Diego are strongest for this property type?

Hagglund: If you look at the map, there's more big-box vacancy in North County, from the 56 north. In 2016, there was more of those types of spaces available versus in South or East County. It's a bigger geographic area, but they also tended to have more development happening there recently, so there were a number of grocery stores that closed in that area of the county. But they will absorb. Our report showed there were 11 big-box vacancies in North County versus three in South County. There are real heavy population densities and ethnic diversity in South and Central San Diego County, and a lot of those boxes didn't hit the market, The Hispanic or Asian markets absorbed the space, so that space never really hit the market. Ranch 99 Market took some of the Haggen spaces, Ace Mart took the Sports Authority space in Kearny Mesa, and that's all south of the 56. The North County spaces will leave; it's just taking a little bit longer, for the most part. Also, there are great locations in North County that have zero vacancies; the coastal areas are very strong, but there are more vacancies in central North County, in Escondido and parts of Oceanside.

GlobeSt.com: What trends are you noticing within the big-box retail sector here that indicate the future of this asset class?

Hagglund: For San Diego County, the future will remain strong. We never overbuilt, so we never had an abundance of this type of space. The quality shopping centers will have near 0% vacancy; secondary areas will go to alternative-type retail uses—more experiential and entertainment retailers or users. A lot is geared toward kids and families: trampoline parks, kids' birthday-party operations, fitness clubs. Many of these businesses are competing for secondary big-box space, particularly in the better areas. Other areas have a lot more vacant big-box spaces: L.A. County has about 90, the Inland Empire has more than 100, and Orange County has about 40. The key is we haven't had land to develop, so we never really overbuilt this product.

GlobeSt.com: What else should our readers know about this property type?

Hagglund: We will continue to see a lot of these big-box retailers downsizing a bit. We may see a Best Buy subleasing off 10,000 square feet of space to another user. Most of this comes back to Internet retailing as to why this is happening. We'll continue to see a trend of alternative-type uses like schools and churches in secondary spaces. In certain types of properties, we'll see more experience and entertainment-type retailers. When people see space vacant for a longer period of time, it's because it takes longer because you're usually dealing with corporate tenants that have legal issues. It can take upwards of 12 to 16 months to get a new tenant in there.

SAN DIEGO—When dealing with corporate tenants and consolidation issues, it can take 12 to 16 months to replace big-box retail tenants, but San Diego has fewer vacancies in this product type than most of its neighbors, CBRE SVP Dave Hagglund tells GlobeSt.com. The firm recently released its year-end big-box retail report for San Diego, so we chatted with Hagglund about the takeaways and where this sector stands compared to other nearby Southern California markets.

GlobeSt.com: What are the main takeaways from your big-box retail report?

Hagglund: All our offices or regions in Southern California track these big boxes. It's hard to track small spaces and much easier to track big spaces. In San Diego, we don't have a lot of big-box retail, which here is space of a minimum of 15,000 square feet; in other markets it's a minimum of 25,000 square feet. In San Diego, there are 23 big-box retail vacancies totaling about 1.1 million square feet; we've absorbed a good number of those spaces with alternative uses. Part of that total square footage is technically not a box—it's actually a department store that took up 300,000 in one space, so that pushed it up; it's a big one, so we put it in the report. That space will be broken up into four to six spaces for different users, and they have a lot of different activity in that building, so it will be absorbed in the next 12 to 14 months.

People ask what's going on with retail, why are these boxes becoming available, and a lot of it has to do with consolidation in retail, especially with grocery chains, which brings space on the market. Stores with the same owner are too close to each other after these mergers, so one closes, and this creates a vacancy. Even some of the better retailers over the past 10 years are starting to close stores because there are too many in the market. Whole Foods in Encinitas, for example, announced it was closing, bringing a 24,000-square-foot on the market. They're rightsizing; one opened at Via De la Valle. Also, there's a new Lazy Acres, a natural-foods grocer, nearby and doing well.

GlobeSt.com: Which geographical areas in San Diego are strongest for this property type?

Hagglund: If you look at the map, there's more big-box vacancy in North County, from the 56 north. In 2016, there was more of those types of spaces available versus in South or East County. It's a bigger geographic area, but they also tended to have more development happening there recently, so there were a number of grocery stores that closed in that area of the county. But they will absorb. Our report showed there were 11 big-box vacancies in North County versus three in South County. There are real heavy population densities and ethnic diversity in South and Central San Diego County, and a lot of those boxes didn't hit the market, The Hispanic or Asian markets absorbed the space, so that space never really hit the market. Ranch 99 Market took some of the Haggen spaces, Ace Mart took the Sports Authority space in Kearny Mesa, and that's all south of the 56. The North County spaces will leave; it's just taking a little bit longer, for the most part. Also, there are great locations in North County that have zero vacancies; the coastal areas are very strong, but there are more vacancies in central North County, in Escondido and parts of Oceanside.

GlobeSt.com: What trends are you noticing within the big-box retail sector here that indicate the future of this asset class?

Hagglund: For San Diego County, the future will remain strong. We never overbuilt, so we never had an abundance of this type of space. The quality shopping centers will have near 0% vacancy; secondary areas will go to alternative-type retail uses—more experiential and entertainment retailers or users. A lot is geared toward kids and families: trampoline parks, kids' birthday-party operations, fitness clubs. Many of these businesses are competing for secondary big-box space, particularly in the better areas. Other areas have a lot more vacant big-box spaces: L.A. County has about 90, the Inland Empire has more than 100, and Orange County has about 40. The key is we haven't had land to develop, so we never really overbuilt this product.

GlobeSt.com: What else should our readers know about this property type?

Hagglund: We will continue to see a lot of these big-box retailers downsizing a bit. We may see a Best Buy subleasing off 10,000 square feet of space to another user. Most of this comes back to Internet retailing as to why this is happening. We'll continue to see a trend of alternative-type uses like schools and churches in secondary spaces. In certain types of properties, we'll see more experience and entertainment-type retailers. When people see space vacant for a longer period of time, it's because it takes longer because you're usually dealing with corporate tenants that have legal issues. It can take upwards of 12 to 16 months to get a new tenant in there.