The national and global financial markets remain in volatile territory, but 2011 was generally a good year for Jones Lang LaSalle Inc. and its large rivals involved in San Diego County commercial real estate, with transaction volume rising even as the number of deals declined from the prior year.
Signals point to continued improvement in the local climate in 2012, although local brokerage firm leaders note that the industry’s fate ultimately rests with a combination of factors beyond their control. That includes prospects for job creation, which in turn would spur demand by client employers for more space.
“I would call it a year of stabilization,” said Bill Fleck, senior managing director in JLL’s San Diego office, referring to 2011. “It looks like most of the downsizing of corporate America is over and the worst of it is behind us.
“I think the companies are more confident about the future than they were a couple of years ago, but I would call it a cautious confidence,” he added.
Data gathered from local commercial brokerage firms by the San Diego Business Journal indicates that the 22 largest racked up $8.96 billion in local transaction volume during 2011, up 30.5 percent from the prior year, even as the number of transactions declined 5.4 percent.
The largest firms serving the local market include Cushman & Wakefield, CBRE, Cassidy Turley BRE Commercial, Marcus & Millichap, Colliers International and JLL.
The industry employs approximately 1,100 people at 60 local offices.
Shuffling Staff to Meet Demands
Hiring has not been exploding, with brokerage leaders generally reporting 2011 staffing levels on par with 2010.
However, brokerage firms have tweaked their local staffs and strategies to reflect changes in demand impacting several sectors. In the past year, for instance, JLL added a multifamily team to establish a presence in the hot local apartment market; Cassidy Turley brought in specialists to boost its property management offerings; and Cushman & Wakefield added several agents in Carlsbad, who were formerly with Coldwell Banker Commercial, bolstering its North County operations.
The moves speak to firms’ quest for customer loyalty in an increasingly competitive marketplace, with investors and companies coming from throughout the nation and world to make deals in San Diego.
“You need to address all of the needs when possible, whether it’s the building management, or the appraisal needs or the investment consulting assistance,” said John Frager, executive managing director in the San Diego office of CBRE, the Los Angeles-based firm formerly known as CB Richard Ellis.
A recent report by Chicago-based JLL noted that San Diego ranks 25th among the world’s cities attracting real estate investment dollars, in a climate where more than half of global investment is concentrated in 30 cities.
The consulting firm PriceWaterhouse Coopers, also known as PwC, ranked San Diego 10th in the nation for its investment prospects in commercial and multifamily real estate, in a survey gauging where U.S. investors plan to place their capital in the coming year.
Frugality Affects Office Space
For the most part, local brokerage firms are dealing with a national scene where employers continue to do more with less, including office space. Tenants leaving spaces to get better deals in better locations are leaving some submarkets with stubbornly high vacancy rates.
Still, companies within stalwart industries are scouting sites for new local locations, including telecom giant Qualcomm Inc. and other firms in high-tech, clean-tech and health care.
Fleck said several law firms are in the hunt for new space, including those expanding and contracting, and defense-related firms such as SAIC and Cubic Corp. have also put out feelers. Local brokers note that two of the largest leasing transactions of 2011 involved financial services firms, potentially signals of a local rebound in that sector.
TD Ameritrade signed a lease for a 111,318-square-foot space at a Sorrento Mesa office complex, where it is relocating its main regional operations from another San Diego location.
An even larger transaction was announced recently and deemed by CoStar Group as one of the region’s largest-ever leasings based on square footage. Financial services provider LPL Financial has agreed to lease 415,000 square feet — all of the space in a new building to be constructed at La Jolla Commons in UTC by the office campus’s owner, Houston-based developer Hines.
“Those kinds of deals give me confidence in how the financial services sector is growing in our economy,” said Daniel Broderick, president and CEO of San Diego-based Cassidy Turley.
Tenants Sign Long Leases
Steve Rosetta, executive vice president in charge of San Diego County operations at Cushman & Wakefield, said office tenants are already showing signs of willingness to lock in long lease terms, which wasn’t the case two years ago.
He will be watching in 2012 for factors including the strength of venture funding, the lifeblood of startup tech firms and a key generator of expansion in fields like biotech and clean-tech, which has been on the rise with other lending sectors.
The outcome of the European debt crisis could either cause international investor capital to dry up, or spur more investment in the U.S. as the domestic market is seen as a safe haven, he said.
The results of the U.S. presidential and congressional elections will have an impact on business decisions and potentially clear up uncertainty that remains in the corporate community about future expansion plans.
“The San Diego mayoral elections this year will be very important,” Rosetta added, noting that the brokerage community is waiting to see if the next city administration is effective in establishing long-term communications with companies such as Soitec, which recently established local operations to produce solar panel technology.