Jeb Bakke

The report, Emerging Trends in Real Estate 2008, anticipates a slowdown in commercial real estate nationally with a healthy correction that will likely bypass long-term investors but penalize speculators and over-leveraged buyers. The ULI is a national nonprofit organization focused on education and research in land use and development, while New York-based PricewaterhouseCoopers provides assurance, tax and advisory services.

The University of Southern California Lusk Center for Real Estate in Los Angeles calculates that the slowdown in the residential real estate market could drag the commercial real estate sector into a downturn in 2008.

“No one knows what will happen to the economy, the credit markets or oil prices next year,” said Stan Ross, chairman of the center. “But real estate companies shouldn’t wait to see if a storm will hit or how intense it will be. They need to start their contingency planning today.”

Ross says real estate investors, developers and other commercial real estate companies must assess their internal health, including assets, income and costs, and the external economic indicators to stay prepared.

“The point is, companies need to take the initiative and not let themselves be overtaken by events,” said Ross.

The Chicago-based National Association of Realtors forecasts only a slight increase in vacancy rates in the office and industrial sectors. Vacancy rates in San Diego will likely be affected by the large amount of office space coming in the next 12 months. Vacancy rates in the county reached a 10-year high in the third quarter of 2007, according to Colliers International Property Consultants Inc.’s San Diego office. Colliers reported a 13.1 percent vacancy rate in the third quarter and anticipated an additional 1.6 million square feet of office space to be completed by the end of 2007.

Numerous commercial projects are expected to break ground in 2008, including the $16.3 million Allied Health Building at Mesa College designed by San Diego-based Architects Delawie Wilkes Rodrigues Barker.

Even more projects are set to be completed. San Clemente-based Consolidated Contracting Services Inc. anticipates the completion of the La Maestra Community Health Center, a 34,660-square-foot facility in City Heights, in fall 2008. Smith Consulting Architects of San Diego anticipates the completion of Abrams Westview Plaza, a 96,500-square-foot Class A office building in Scripps Ranch, in June. Sudberry Properties Inc. of San Diego expects the completion of Terraces at Copley Point, a $115 million Class A office project in Kearny Mesa, in September.

Jeb Bakke, a San Diego-based senior vice president with CB Richard Ellis of Los Angeles, says vacancy rates have increased, but are only one measure to look at when considering the overall health of the market.

“The well located, well designed projects are going to do fine,” said Bakke. “They might be leased up a little bit more slowly than they would have two to three years ago because of the psychology in the economy, but they will come out fine.”

Bakke says technology, education, governmental agencies and other business types are still seeking space in San Diego.

Tenants Seeking Space