Outlook Remains Upbeat for Thriving Region, following Slim Occupancy Loss in Q3
SAN DIEGO, Calif., October 16, 2019 – Cushman & Wakefield San Diego’s new office market report for the third quarter of 2019 reflected ongoing stability in San Diego’s office sector. Overall office vacancy came in at 14.0% for the quarter, with direct vacancy at 11.8%. Net absorption did come in at a marginally negative 73,000 square feet (sf), nonetheless, despite the shallow dive the report indicates 2019 still remains at a very solid level with a net positive 575,000 sf year to date, as the growth cycle continues. Indicative of demand for quality office space, the Class A segment has racked up more than 900,000 sf of growth year to date in San Diego.
Brett Ward, Executive Director with Cushman & Wakefield’s Office Division in San Diego, said, “There are still several large occupancies in the traditional and creative office segments as well as the thriving life sciences sectors, expected to transpire by year-end and into 2020. In addition, tenant demand still remains strong with 4.0 msf of requirements potentially landing over the next 24 months—though not all will transact by then. We expect occupancy to close the year on a good note and push our annual growth figures even higher countywide.”
Jolanta Campion, Cushman & Wakefield’s Research Director in San Diego, said, “On an annualized basis, what is paramount is that the office market is again on track to end 2019 with occupancy growth, based on current leasing activity, which would amazingly mark its 10th consecutive positive growth year—in which during this period tenants absorbed 10.2 msf combined, with 7.9 msf resulting from Class A space.”
The strongest office submarket performers in the third quarter in terms of occupancy growth were Scripps with positive 184,000 sf and San Marcos with positive 115,000 sf of growth. Occupancy gains in these two submarkets were bolstered by the deliveries of build-to-suit projects for MedImpact (159,000 sf) and CSU San Marcos Extended Learning (120,000 sf).
Other respectable occupancy growth figures during the quarter were found in the submarkets of Campus Point, Del Mar Heights, Del Mar/Solana Beach, La Jolla, and Carlsbad, each ranging from approximately 20,000 to 35,000 sf. Carlsbad has now accumulated nearly 450,000 sf of occupancy gains year to date.
The overall average asking rent for office space in San Diego is now $3.26 psf on a monthly full service basis, up 7.6% from a year ago. Class A average rent has increased by 6.6% to $3.70 psf year-over-year, while the Class B rate has increased by 12.4% to $3.17 psf.
Investment sales activity is steadily comparable to recent years, with sales $10M+ totaling $1.7 billion in volume year-to-date, a decrease of 3% from the same time range in 2018 but an increase of 3% from 2017.
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