San Diego Office Market

Source: Tom Hennessy & Scott Coronel July 19, 2016



On a national level, all indications point towards a healthy office market as we enter the third quarter of 2016 despite an under-performing U.S. economy.  According to NAIOP, approximately 15.4 million square feet of space was absorbed by tenants last quarter, an increase of 6.4 million square feet over Q1. Amounting to 24.4 million square feet of leased office space for the first half of 2016.  This is up from the 19.3 million square feet absorbed in the first half of 2015.  Rent growth showed a strong 4% increase with vacancy rates continuing to fall.

San Diego has seen approximately 263,000 square feet of new office space delivered in 2016. Some of the larger developments include Eastgate Terrace in UTC and Torrey Point project in Carmel Valley.  Net absorption in San Diego has remained flat in contrast to the national trend as a result.  We are seeing a continual increase in rental rates for high-end office space but overall rent growth is beginning to flatten.  Class-A office rent has reached an average of $2.50-$3.00 per square foot with high-end spaces averaging closer to $3.50-$4.00 per square foot.  Across the country demand is being driven by technology and financial service firms and we are seeing a similar trend here.  One such example is Google’s recent entrance to the market into a 60,000 square foot space in Sorrento Mesa.  Tech and bio-medical companies are moving to San Diego to tap into the high-caliber talent while taking advantage of lower overhead costs as compared to markets such as San Francisco and Los Angeles.

In order to stay competitive landlords are making capital improvements to convert traditional office space to “creative office” to accommodate today's work environment by transforming common areas and adding additional amenities.  Some examples include creating indoor and outdoor communal spaces to promote collaboration, updating entryways, and adding gyms and game areas.  We are also seeing a strong trend towards co-working spaces being added.  With advances in technology, there is a desire to have more independence from the office and be able to have flexibility to work remotely.  Companies are also getting on board with this idea because it allows them to decrease their overall costs as well as source talent from further distances.  Landlords are quickly realizing that having this type of creative space is crucial towards long term tenant retention.


So where will the San Diego office market go from here?  As the gap between Class A and Class B office rental rates widens tenants are now gravitating towards Class-B space as a more economical option.  Class-B landlords that recognize this trend and invest in creative upgrades are likely to see more interest in their buildings. Today’s workforce is not looking at vertical movement to upper management the same way they were a few years ago. More importance is being placed on the live work balance and “creative workspace” helps fill this role.  





DISCLAIMER: This blog/article has been curated from an alternate source and is designed for informational purposes to highlight the commercial real estate market. It solely represents the opinion of the specific blogger/author and does not necessarily represent the opinion of Pacific Coast Commercial. 

All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.  The owner of will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.


Keywords: San Diego Commercial Real Estate For Sale, Commercial Property In San Diego, Commercial Real Estate In San Diego, San Diego Investment Real Estate, Commercial Property Management In San Diego, San Diego Commercial Property Management, Commercial Property Management San Diego, Managed Commercial Property San Diego, Commercial Property For Sale San Diego, San Diego Commercial Real Estate Leasing

Comments

Popular Posts