San Diego’s economy continues to add jobs, helping to push office vacancy rates down. That is especially the case for Class A space, which has had positive absorption in 28 of the last 31 quarters.
“Two large move-ins drove overall countywide absorption in Q1 2017,” said Jolanta Campion, Cushman & Wakefield’s Research Director in San Diego. “The City of San Diego moved multiple departments into 101 Ash St. in downtown, totaling 304,700 square feet. In Campus Point, Eli Lilly expanded their operations into a 304,300 square foot build-to-suit project.”
Alexandria Real Estate Equities redeveloped that building for Eli Lilly, investing $136 million into the property. Alexandria also completed a $42 million renovation for Otonomy at 4796 Executive Dr. in Eastgate. That 62,000 square foot property is the company’s new corporate headquarters.
With vacancy rates dropping to 14.4 percent, developers are more bold and active in building new office space.
Five buildings totaling 488,000 square feet were completed in the first quarter – all in Central County. An estimated 366,100 square feet of that new space is committed.
There are 17 properties other properties under construction with 13 scheduled to open in 2017. The 17 buildings will add 1.5 million in square feet and 56 percent is booked.
“Over half of the square footage under construction are part of build-to-suit projects,” said Matty Sundberg, Senior Director for Cushman & Wakefield in Carlsbad. “Three of the properties under construction are creative office renovations of previously existing buildings.”
That includes the old Union-Tribune office and print buildings in Mission Valley and the building that used to house the San Diego Daily Transcript in Uptown.
Our City will host an Office Market Forecast on Wednesday, April 26.
The countywide average asking rent for all classes is $2.78 per square foot for full service. The Class A average stands at $3.20 while Class B is $2.56. There is still plenty of room for growth in the A market guided by new construction, and the widening gap between the A and B markets will subsequently allow more room for the B market to increase.
“Our expected ongoing economic growth and resulting job growth will continue to drive occupancy and rent growth in 2017,” said Derek Hulse, Managing Director in San Diego. “The Top 3 industry sectors — Health Care, Financial Activities and Life Science — account for over 50 percent of the total demand tracked in the county.”