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RENTALS–Rental Office Door Opens For Bargain Hunters

Office and industrial tenants are facing higher rents in San Diego County this year, but there still are some relative bargains, leasing agents report.

“One of the best sub-markets for office space with relatively a lot of available space is Carlsbad,” said David Marino, executive vice president of Irving Hughes of San Diego, a tenant representation brokerage, on March 1.

“Del Mar Heights has a less than 1 percent vacancy rate, while Carlsbad has a 15 percent vacancy rate.”

However, a number of tenants seeking large amounts of space are looking in the Carlsbad area. That could affect vacancies and lease rates later in the year, Marino cautioned.

Areas along Interstate 5 north of the I-5 and I-805 merge near Del Mar are extremely popular now, he said, because business executives who live in North County want to avoid the long commute and traffic congestion south of there, he said.

Currently, Del Mar Heights’ monthly rental rates are from $2.35 to $2.50 per square foot, plus the cost of electricity.

In Carlsbad, $1.65 to $2.10 per square foot is the monthly rental rate for the best quality office space with the tenant also paying for electricity, Marino said.

Ron Beck, a leasing agent in the University Towne Centre office of Vancouver, British Columbia-based Colliers International, said a good rule of thumb to use when seeking rental space is to figure the farther north or south a prospective tenant goes in San Diego County, the cheaper rates will be. Land costs tend to be lower in outlying areas like Vista or Otay Mesa.

Deals In The Valley

However, there are some potential leasing bargains in older office buildings in Mission Valley and Kearny Mesa.

Beck, who specializes in office and industrial property leases along the Interstate 15 corridor, said tenant improvement construction allowances vary from tenant to tenant.

Factors such as the creditworthiness of the prospective tenant, condition and configuration of the existing space and whether the building improvements sought by the new tenant will last beyond the term of the lease are important considerations, he said.

Some features requested by new tenants, such as carpeting, frequently must be replaced at the end of a three- or five-year lease, while partition walls do not, he added.

For tenants seeking industrial space, the Scripps-Poway Parkway area, excluding the area adjacent to I-15, will offer some good opportunities in the coming months, he added.

“Typically, the farther you get east of the I-15 intersection, the lower the lease rates,” Beck said.

“Tenant improvement allowances will vary in the industrial market depending on whether you are looking for warehouse space, which is relatively cheap, or research and development space, which is relatively expensive,” he said.

Marino of Irving Hughes said that in his opinion the best opportunities for bargain industrial rents are in North County and South County.

“The more desirable areas, such as Kearny Mesa and Sorrento Mesa, are getting expensive,” Marino said.

“Tenants in businesses that are more lease sensitive, such as high volume manufacturing, are more concerned about lease rates than an Internet company that just raised $100 million and they’re moving farther north.”

Counting Pennies

During the fourth quarter of 1999, the average asking monthly lease rate for industrial property in San Diego County increased 1 cent to 71 cents per square foot, according to CB Richard Ellis, a national commercial real estate brokerage.

“Continuing demand for space pushed the industrial vacancy rate down to 7.21 percent from 7.32 percent late last year,” said Nicholas Psyllos, first vice president of CB Richard Ellis’ San Diego office.

He said three-quarters of the 1.6 million square feet of industrial space under construction in the county was in the Carlsbad, Miramar, Torrey Pines and Otay Mesa areas.

Industrial lease rates tend to be higher in the Torrey Pines-UTC area because of the concentration of biotechnology and biomedical companies there, he added.

Industrial construction activity tapered off in the fourth quarter of 1999.

“Carlsbad, Otay Mesa, Torrey Pines-UTC and Miramar accounted for almost two-thirds of the 1.6 million square feet under construction in the county,” Psyllos said.

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