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Tuesday, Feb 27, 2024
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Office Real Estate Market Alive but Challenged

REAL ESTATE: San Diego Vacancy Rate One of Lowest in Nation

SAN DIEGO COUNTY – San Diego’s real estate market for office space is struggling but far from dead.

Tim Olson
Market Lead
JLL

“It’s still one of the best in the country. We have a lot going for us when you compare us to the rest of the world,” said Tim Olson, market lead of JLL in San Diego.

Olson said that San Diego has one of the lowest vacancy rates in the country for office space.

“In total leasing, we were actually almost higher in 2023, as far as the number of transactions that got signed on a square-foot basis, compared to 2022,” Olson said. “It’s not like there’s this big cliff of no leasing activity. The difference is, we’re seeing a lot more renewals. Companies aren’t making a move.”
Olson said that 1.6 million square feet of office space was leased in the fourth quarter.

On the downside, San Diego had 720,000 square feet more office space come on the market than was absorbed in the fourth quarter, according to Olson.
Most of that was the result of Illumina giving up space in UTC, Olson said, adding much of that space will be taken over by one or more other biotech companies.

“A lot of the suburban markets are still performing well. Rancho Bernardo is one of the top performing markets. It’s a lot of tech. It’s a lot of defense, a lot of engineering – those types of companies,” Olson said. “Del Mar Heights and UTC are still performing well as a whole, because they’re central markets, they’re desirable markets.”

Reinvention

Mike Hoeck, executive vice president of CBRE in San Diego, said there’s no question that demand for office space is sharply down as some companies adjust how much room they need as more people work from home during at least part of the week.

Mike Hoeck
Executive Vice President
CBRE

“Office demand is off by about 50% relative to our 10-year average,” Hoeck said, but he said that “there are companies that are continuing to grow.”
While not the rule, Hoeck said that some companies that gave up space have started reevaluating.

“There is at least half a dozen of those,” Hoeck said.

James Bengala, a senior associate with Lee & Associates, said that coworking and medical professionals are two segments of the office market that continue to expand, and life science companies are likely to return to the office market.

“These last few years have been a rollercoaster due to COVID, then inflation, then work from home,” Bengala said.

James Bengala
Senior Associate
Lee & Associates

Overall, Olson of JLL said that the 2024 office will have its challenges.
“Do we have a harder road than normal ahead of us in an election year? Yes, but I think in time, the office market is going to rebound, but like any transition, it takes time and kind of a reinvention of how office space is used,” he said.

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