San Diego Near record low unemployment levels in San Diego County are hitting the commercial real estate market by driving down vacancy rates and contributing to rising rents, primarily for office space.
“More than any other type, office is tied to jobs and job growth,” said Michael Combs, research manager for CBRE in San Diego.
The county unemployment rate in April dropped to 2.9 percent, according to the state Employment Development Department — the lowest it’s been since December 1999 when it was 2.6 percent.
That compares with a county unemployment rate of 3.2 percent in March and 3.9 percent a year ago.
Over the past year, San Diego County has added 32,100 non-farm jobs, an increase of 2.2 percent.
Professional and business services followed by construction were the two biggest categories for job growth, with professional and business services adding 14,100 jobs between April 2017 and April 2018.
About 4,900 construction jobs were added during the same period.
While construction jobs do little to increase demand for office space, increased employment in professions and professional services is a factor.
“The effects are somewhat mixed, depending on the type of employees affected,” said Ron Miller, a senior vice president of Colliers International in San Diego.
“At the top is medical/nursing. Nursing is the highest in demand and it’s number one in the top 10 occupations by unique job postings, then come software developers,” Miller said. “Both tech and medical companies are gobbling up a lot of office space.”
He said vacancy rates for office space across all classes of buildings averages about 11.4 percent countywide.
“It’s starting to hit record lows,” Miller said. “It’s been trending down quarter, after quarter, after quarter.”
In submarkets such as downtown, Mission Valley and Kearny Mesa, the office vacancy rate for top-of-the-line Class A space has dropped into the single digits, Miller said.
Faced with the prospect that they’ll have to pay more for the space they’re in or to find room to grow, some companies are responding by taking a hard look at the way they arrange their workspace.
“If there’s a trend toward consolidating some of that space, we could see job growth without seeing an increase in absorption,” said CBRE’s Combs.
The push for so-called open, creative office space has been an ongoing trend, but it’s getting a boost by the drop in unemployment.
“Many floor plans and the way companies are now using their space are inefficient,” Miller said. “We advise them to kind of resize their office in a more efficient manner.”