Single-Tenant Net Lease Investment in San Diego
San Diego's single-tenant net lease market runs tight. Investment-grade tenants trade at 4.5%-5.5% caps while credit tenants push 6%-7.5%. The 1031 exchange crowd keeps bid prices high, especially on anything with 10+ years remaining. Defense contractors and healthcare tenants dominate the quality paper. Sale-leaseback activity from expanding biotech companies creates fresh inventory, but it gets snapped up fast. You're competing with REITs and private wealth for the clean deals.
Market Context
Cap Rate Range
4.5%-7.5% depending on tenant credit and lease term. Investment-grade tenants (S&P rated) trade at 4.5%-5.5%. Regional/local tenants with strong financials get 5.5%-6.5%. Credit tenants push 6%-7.5%
Current Vacancy
Not applicable - single-tenant properties are either occupied or dark. Dark store risk varies by tenant and lease terms
Rent Trend
Annual escalations typically 2%-3% for new deals, 1.5%-2.5% for older leases. Some flat rent periods followed by bumps. Healthcare and QSR tenants paying premium rents
Absorption
Not applicable for single-tenant assets
Price Per Unit Trend
Price per square foot varies widely by tenant and location. $200-400/sf for investment-grade tenants in prime locations, $150-300/sf for credit tenants
Transaction Volume
$450M in single-tenant net lease sales in 2025, up 15% from prior year. Average deal size $3.2M. REIT buyers active on $5M+ deals
Submarket Analysis
Sorrento Valley/UTC
4.5%-5.5% capVacancy
Minimal - high demand area
Avg Rent (1BR)
Not applicable
Biotech and tech tenants driving demand. Sale-leaseback activity from growing companies. Limited new supply
OM Tip
Highlight proximity to life science cluster. Include tenant's growth plans and expansion options
Mission Valley
5.0%-6.5% capVacancy
Low - transit-oriented demand
Avg Rent (1BR)
Not applicable
Transit improvements boost retail demand. Mixed-use development changing character. Healthcare tenants active
OM Tip
Emphasize transit access and demographic shifts. Include traffic counts and visibility metrics
Kearny Mesa
5.5%-7.0% capVacancy
Moderate - suburban retail challenges
Avg Rent (1BR)
Not applicable
Defense contractors provide stability. Some retail struggling. Industrial users converting retail space
OM Tip
Focus on defense/government tenant stability. Include lease guarantor details and government contract info
Coastal (La Jolla/Del Mar)
4.0%-5.0% capVacancy
Very low - trophy locations
Avg Rent (1BR)
Not applicable
Premium locations command low caps. Wealthy demographics support high-end retail. Limited developable land
OM Tip
Lead with location prestige and demographic data. Include comparable luxury retail sales
South Bay (Chula Vista/National City)
6.0%-7.5% capVacancy
Moderate - value-oriented retail
Avg Rent (1BR)
Not applicable
Growing Hispanic population drives specific retail demand. Border proximity affects some tenants. Value retail performs well
OM Tip
Highlight demographic growth and border trade advantages. Include tenant sales performance data
Performance by Vintage
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What Your OM Needs to Address
Complete lease abstract
Include every material lease provision. Go-dark clauses, co-tenancy requirements, exclusive use provisions, assignment restrictions
Data to Include
Full rent schedule, all escalation mechanisms, renewal options with rates, dark store provisions, guarantor financial statements
Tenant credit analysis
Three years of tenant financial statements. For franchisees, include both franchisee and franchisor info. Corporate guarantees and personal guarantees
Data to Include
D&B report, recent 10-K filings for public companies, bank references, franchisor approval letters, guarantor net worth statements
Location and traffic analysis
Traffic counts, visibility metrics, parking ratios, ingress/egress patterns. Competition within trade area
Data to Include
Current traffic counts, historical trends, demographic reports within 1, 3, 5 mile radius, competition mapping
Rent escalation structure
Clearly show all rent increases over lease term. CPI escalations need base year and caps/floors. Percentage rent thresholds and calculations
Data to Include
Annual rent schedule through lease expiration, CPI calculation methodology, percentage rent history if applicable
Dark store and assignment provisions
Can tenant go dark and keep paying rent? Assignment and subletting restrictions. What happens if tenant breaches
Data to Include
Exact lease language on dark store rights, assignment approval process, financial covenants that trigger defaults
Environmental and zoning compliance
Phase I environmental report. Current zoning allows use. Any special permits or conditional use permits required
Data to Include
Recent Phase I ESA, zoning compliance letter, copies of any special permits, fire department approvals for restaurant use
Investment Outlook
Short Term
Continued competition for quality assets keeps caps compressed. Interest rate environment affects REIT buying power. 1031 exchange demand stays strong through 2026. New sale-leaseback supply from biotech sector expansion
Medium Term
Rent escalation structures become more important as inflation persists. Credit quality scrutiny increases. Some retail tenants face continued pressure while healthcare and QSR remain strong. Defense contractor tenants benefit from increased military spending
Long Term
Location quality matters more as retail evolves. Properties with redevelopment potential carry premium. Climate change considerations affect coastal properties. Autonomous vehicle impact on drive-through retail unclear but worth monitoring
Buyer Profile
1031 exchange buyers dominate sub-$5M market. REITs and private equity active on larger deals. Family offices like investment-grade paper. Opportunity funds target credit tenants with upside potential
Marketing a single-tenant net lease property in San Diego?
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