San Diego County CA— Cushman & Wakefield’s new Q2 2017 San Diego office market snapshot reported that occupancy growth through the first half of 2017 just reached a four-year midyear high.
Jolanta Campion, Cushman & Wakefield’s Research Director in San Diego, said “The San Diego office market is still humming, as the second quarter of 2017 tacked on another 95,000 square feet (sf) of positive net absorption across all classes countywide. Led by a robust first quarter, the first six months of 2017 have combined for more than 550,000 sf of occupancy growth, the best midyear performance since 2013’s first half level of 736,300 sf.”
Ms. Campion noted, “While comparatively tempered, the second quarter of 2017 marked the 12th consecutive quarter of positive absorption for San Diego’s office market. Not since the second quarter of 2014 has any single quarter closed in negative territory.”
According to Brian Starck, Executive Director of Cushman & Wakefield’s Office Division in San Diego, “Absorption in Q2 2017 was largely driven by several mid-sized move-ins. In Kearny Mesa, the County of San Diego occupied their 58,000 sf lease at 3666 Kearny Villa Rd. while AVID moved into 50,000 sf at 9797 Aero which they acquired early this year. In Downtown, 130,000 sf was absorbed across four buildings that included larger occupants such as Suntrust Bank and Psyonix. In Chula Vista, Scripps occupied 27,000 sf of a building it purchased. And in Torrey Pines, the Medicines Company moved into its recently completed 63,000 sf build-to-suit at Spectrum Lab; however, the company is offering half the space up for sublease.”
Mr. Starck added, “In the life sciences sector, the largest transaction signed in the second quarter was a build-to-suit lease between Takeda Pharmaceuticals and Alexandria Real Estate totaling 163,000 sf in the Eastgate submarket, and the second largest deal was a lease renewal from Synthetic Genomics totaling 58,000 sf at 3020-30 Callan Road in Torrey Pines. Overall the life science market is trending below 6% direct vacancy. A lot of the activity seems to be focused on series A round venture-backed companies seeking 10,000 to 15,000 sf lab and office facilities.”
New construction remains a vital focus for the San Diego office market landscape. Two more buildings totaling 67,600 sf were deemed completed in Q2 2017, bringing midyear deliveries to more than 555,600 sf (notably par with net absorption figures as well). According to Derek Hulse, Managing Director of Cushman & Wakefield’s Office Division, there are 18 properties totaling 1.6 million square feet (msf) currently under construction countywide, and nearly 65% of this total square footage under construction already has commitments in place.
Mr. Hulse added, “Looking ahead, all employment sectors in San Diego are expected to grow at a combined growth rate of 1.6% in 2017, per Moody’s Analytics. Office employment is forecasted to record 2.4% growth in 2017, positively affecting demand for office space.
“Further, the market still awaits official occupancy by a number of large tenants that have already executed leases in prior quarters that should help bolster occupancy in coming quarters, especially those in new development projects. In addition, our pool of active tenant requirements remains solid still at over 3 msf which could also bode well for the office market should a fair amount of them transact in the not too distant future.”
CLICK HERE to access Q2 2017 San Diego MarketBeat Office Report summary.
CLICK HERE to access Q2 2017 San Diego Office Historical Snapshot + submarket stats.
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