San Diego Office Market Shows Early Signs of Stability

5 May, 2010, San Diego

A just released Cushman & Wakefield report reflects that activity is gradually picking up in the San Diego County office market, particularly in conveniently located areas with well-positioned and desirable office product that is now available at highly competitive rates with generous concessions.

According to the study, San Diego County recorded 291,140 square feet of direct positive net absorption for the first quarter of 2010, a significant shift from the same period in 2009 when negative 531,760 square feet of net absorption occurred. Gross leasing activity (representing all direct leases and subleases signed) during the first three months of the year was 1,595,164 square feet.

"The San Diego County office market has been treading water for quite some time now, but in select submarkets we are finally seeing movement," said Eric A. Northbrook, SIOR, executive director with Cushman & Wakefield. "This is coming from an increase in activity from companies who recognize that the current environment provides tremendous opportunity for quality space. As the overall economy begins to stabilize - reflected in recent stock market and employment gains - we expect to see even more improvement."

The I-15 Corridor remains the bright spot of the first quarter, with 334,963 square feet of positive net absorption as of March 31, 2010. The majority of this activity occurred in Rancho Bernardo where Nokia signed a 196,734-square-foot lease at The Summit at Rancho Bernardo. Additionally, MedImpact moved into its newly completed 150,000-square-foot build-to-suit campus in Scripps Ranch, and renewed a signification portion (32,775 square feet) of space at Scripps Corporate Plaza.

Other significant transactions in the first quarter include The County of San Diego, which signed a 45,847-square-foot lease at 450 B Street in downtown San Diego; Advanced BioHealing, which signed a 20,432-square-foot lease at 11095 Torreyana Rd. in Torrey Pines; and Lewis Brisbois Bisgaard & Smith, which signed a 29,940-square-foot lease at 701 B St. in downtown San Diego.

The Cushman & Wakefield report shows current countywide direct vacancy of 15.2 percent unchanged from 15.2 percent reported in the first quarter of 2009. Direct asking monthly rental rates are averaging $2.26 per square foot countywide, down from $2.55 per square foot as of March 31, 2009.

"The traditional high-demand, upscale submarkets such as Del Mar Heights and UTC are still realizing high vacancy at 16.3 percent and 21.7 percent, respectively," said Northbrook. "Prime office space available in these areas will continue to place downward pressure on rental rates in tighter markets such as Sorrento Mesa and Kearny Mesa (reporting 8.5 percent and 9.8 percent, respectively)."

Northbrook notes that concessions are still being offered, short-term leases remain favorable and landlords that are creative and flexible in deal structures are seeing the most activity.

The study shows the most active industry sectors include financial services, biotech, medical device and the government and its affiliates and services.

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