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San Diego Office Market Remains Strong

San Diego County CA— According to CBRE’s research, San Diego’s office market continued to have many positive indicators this quarter including, high sales volume, increases in asking rates, positive net absorption, and construction deliveries which resulted from strong economic growth.

There was more than $1 billion in office sales this quarter, which is the highest volume of sales since Q3 2007. Year-to-date sales volume is more than $2.3 billion; 2015 has already surpassed 2014’s total by nearly $300 million.

San Diego’s overall asking rate rose 3.6 percent quarter-over-quarter to $2.59, an increase of $0.18 year-over-year. The current rate is only $0.03 from the $2.62 peak seen in Q2 2008. CBRE Econometric Advisors forecasts that peak pricing will be surpassed in Q1 2016.

All classes experienced quarter-over-quarter rate increases, but Class A was the clear leader with an increase of 4.5 percent to $3.10; Class B and C both increased by 1.6 percent. UTC, the perennial leader, had the largest overall increase of $0.32 or 10 percent quarter-over-quarter to $3.53 primarily due to the delivery of prime office space at One La Jolla Center.

The San Diego office market posted 16,660 square feet of positive net absorption this quarter. While this was a relatively flat quarter, it is the twentieth quarter of positive net absorption out of the last 24 quarters, which brings year-to-date net absorption to positive 539,327 square feet.

Occupancy shifted from Class B to Class A this quarter primarily due to Sempra Energy vacating their old Class B headquarters and moving into a new Class A build-to-suit. Despite Class B’s negative net absorption this quarter, it has posted 434,801 square feet of positive net absorption year-to-date, accounting for more than 80 percent of the year’s overall total.

Alexandria’s purchase of Qualcomm’s building; located 10290 Campus Point in UTC for $105 million was the quarter’s largest single-building purchase. Alexandria plans on converting the office building into lab product through extensive upgrades to make it suitable for a major life science tenant, who has already signed a lease for more than 15 years in conjunction with the purchase.

This quarter saw the highest square footage delivered since 2007 and three new projects broke ground. The new construction consists of a Class A, 65,700-square-foot build-to-suit for ViaSat in Carlsbad and two new Class A buildings which total 92,018 square feet, named Torrey Point in Del Mar Heights.

“With new office buildings breaking ground and more buildings likely to break ground in the next 18-months, it is prompting the user community to evaluate their real estate requirements earlier than typically warranted,” said Mike Hoek, first vice president of CBRE in San Diego. “Ultimately the new construction should lead some shuffling of chairs by office users and some new larger second generation availability within Class A office buildings.”

San Diego saw three deliveries this quarter—the 320,000-square-foot Sempra Energy Headquarters building in downtown, the 306,000-square-foot One La Jolla Center in UTC and ViaSat’s 77,400-square-foot build-to-suit in Carlsbad. One La Jolla Center was the first in the pipeline to be delivered and was around 20 percent pre-leased upon delivery. There is more than one and a half million square feet of proposed speculative office construction in Central San Diego.

You can view or download the report [here]