San Diego Office Market Stays Strong: Occupancy, Rents, Sales Up, Vacancy Down

The latest reports are coming in from SoCal brokerage research teams and a quick look at the San Diego office market numbers for Q2 2019 reveal interesting perspectives.

Cushman & Wakefield reports tenants absorbed 448,000 square feet on a net basis Q2 2019, bringing total occupancy growth at mid-year to 647,000 square feet. That means the first six months of 2019 have virtually doubled the 342,000 square feet of growth recorded in the first six months of 2018.

Cushman & Wakefield’s Jolanta Campion notes, “With the exception of the fourth quarter of 2018—when tenants returned a modest 96,000 square feet—this marked the 19th consecutive quarter of positive absorption. Gains in the second quarter were driven by a number of large occupancies, namely from companies such as ViaSat, Encore Capital, Qdoba, DJO, Sorrento Therapeutics, and Curology.”

CBRE, meanwhile, reports net absorption hit negative 147,262 square feet in Q2, a result of a renovation coming back on the market and large tenants moving out such as Qualcomm and the Art Institute. The firm notes total vacancy rose 50 basis points quarter over quarter to 10.4%. Class A vacancy increased slightly to 11.5%, but was down 160 basis points year over year.

Cushman & Wakefield reports San Diego’s overall office vacancy declined by 30 basis points during the second quarter to 13.7%. Vacancy, however, is still up by 110 basis points from midyear 2018 primarily as a result of 1.2 million square feet of inventory delivered over the last year.

As far as rents go, Cushman & Wakefield pegs average weighted asking rents for all classes at $3.19-per-square-foot on a monthly full service basis, up 5.6% from a year ago. CBRE says the overall asking rate increased, for the seventh consecutive quarter, to all-time high of $3.07 full service gross.

There are 12 office properties totaling nearly 1.8 million square feet currently under construction countywide, reports Cushman & Wakefield. Of this total, 724,000 square feet is expected to be delivered in 2019. CBRE pointed out more redevelopment could be on the way, most notably at the repurposed Horton Plaza project Downtown (pictured).

Cushman & Wakefield reports sales volume reached $798 million in Q2 2019, largely due to the $514M sale of La Jolla Commons. Year-to-date 2019, sales volume has reached $1.1 billion, a 19% increase from mid-year 2018.

Campion said, “REITs (50%) and private buyers (29%) have been the leading buyers, while institutional (57%) and private investors (33%) have been the leading sellers of office properties as of mid-2019.”

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