Despite reports that net absorption is at a 12-year low and vacancy rates at a 12-year high in the San Diego County commercial market, Cushman & Wakefield predicted a relatively flat year with continuing slower net absorption and higher vacancy rates in its latest office market outlook.
Steve Rosetta, executive director of Cushman & Wakefield in San Diego, said the slowing economy is reflected in lower demand for office space, rising vacancy rates and softening in the rental rates from 2006 and early 2007.
“However, San Diego’s historically strong and diverse economy that is grounded in growth areas such as biotechnology, defense, entertainment and tourism should minimize impact from other slowing industry sectors,” he said.
There are several large tenants who are active in the market, according to the report. The brokerage reported that Sony Electronics Inc., a unit of Sony Corp., Ashford University and Leap Wireless International Inc. are all expanding their headquarters locally.
According the report conducted by the San Diego office of Cushman & Wakefield and leased on March 21, the local office market has had a consistent demand for space since 1995.
It reported that this demand triggered new construction that could not be built or absorbed fast enough.
It said that since 1998 a total of 416 new office buildings totaling 24 million square feet of office space have been added to the market including 3.4 million square feet of new space last year.
Unfortunately, net absorption in 2007 was 712,000 square feet and was down 61 percent from a year earlier.
The 3.4 million square feet of new inventory in 2007 represented the most completions since 2001, said Cushman & Wakefield.
Nearly 2 million square feet, or 54 percent, was pre-leased.
Mark Wayne, senior director with Cushman & Wakefield, noted that with absorption consistently well above 1 million square feet annually and spiking to 3.2 million square feet in 1998, 4.6 million square feet in 2000 and 2.5 million square feet in 2005, the current slowdown is a notable change of pace.
The report predicted tenants will take on a “wait and see” approach to leases and development will also slow this year.
“Construction starts will continue to slow as developers hesitate to break ground on projects without tenant commitments in place and lenders hold to more rigid lending requirements,” said Rosetta. “Further constraining new development is the high cost and limited supply of developable land as many San Diego submarkets approach full build-out.”
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Construction recently began on the new School of Speech, Language and Hearing Sciences at San Diego State University. The project consist of renovating 28,000 square feet of existing classroom and lab space in the former Student Health Service building for undergraduate, masters and doctoral level students in speech-language pathology, communicative sciences, audiology and American Sign Language/deaf studies.
The design build team includes the San Diego office of C.W. Driver, San Diego-based Ferguson Pape Baldwin Architects, ICS Mechanical, Rowan Electric, Brady Co., and Casper Co.
The projected completion date is scheduled for August.
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