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San Diego County Office Market Ends 2016 at Record Low Vacancies, Buoyed by Demand for Downtown Space

San Diego County CA— Fourth-quarter office vacancy in San Diego County fell to a record low and leasing activity was the highest ever in any single quarter, according to the latest CBRE research. Demand was particularly strong in Downtown where startups and co-working places have been drawn to the neighborhood’s newly renovated office spaces.

2.55 million square feet were leased in San Diego this quarter, making the fourth quarter the most active quarter in history—the top three submarkets were Downtown, UTC and Rancho Bernardo.

“Downtown San Diego led the county in 2016 in net absorption and leasing activity, and is currently at historic peak rents,” said Matt Carlson, senior vice president of CBRE in the San Diego region.   “Downtown accounted for more than one-third of all the county’s absorption in 2016.  The CBD is luring innovative startup companies because of the attractiveness of the live-work-play environment, and I believe we will continue to see an increase in leasing activity coupled with high rents.”

The city’s downtown neighborhood has continued to up its appeal as older buildings have been converted into creative office or retail spaces and towers have received upgrades. Among those companies that have been adding space in this part of town has been WeWork, which opened two of their six leased floors at 600 B Street, joining several smaller-scale co-working operators in the area. Another co-working operator, Level Office out of Chicago, purchased a building in the third quarter and will open upon the completion of renovations currently under way.

Downtown had the highest year-to-date positive net absorption of 663,831 square feet; a large portion of that occurred in the fourth quarter when the City of San Diego leased approximately 305,000 sq. ft. at the former Sempra Energy headquarters. Kearny Mesa had the second-largest year-to-date positive net absorption with 342,340 square feet.

In the fourth quarter, the fully leased i3 Campus developed by BioMed Realty, added 316,262 square feet of positive net absorption. The project consists of three buildings and was previously classified as lab space until Illumina took up the entire campus, dedicating the majority of the project to office use.

Overall, 446,794 square feet of new office space was delivered in San Diego County last year, less than the yearly amounts in 2014 and in 2015.

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