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Local office market hits lowest vacancy rate in 13 years


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The office vacancy rate in San Diego County dropped below 10 percent for the first time in more than 13 years in the fourth quarter, according to a new report by Colliers International.

The vacancy rate stood at 9.8 percent as the county's overall net absorption totaled 487,000 square feet in the fourth quarter.

San Diego County experienced nearly 1.5 million square feet of net office absorption in 2019 -- the best year since 2014, according to Colliers' latest Occupier Outlook report.

Class A office space absorption was strong enough to push the countywide vacancy rate in that category down to 9.1 percent.

Kearny Mesa (2.8 percent vacancy rate), UTC (4.8 percent) and Sorrento Mesa (7.9 percent) posted the lowest Class A vacancy rates at the end of 2019.

Colliers found Class A inventory recorded the largest fourth quarter activity with 260,000 square feet of net absorption.

"Notably, vacancy currently stands at only 2.6 percent in the 4.5 million square feet built in the last decade (2010-2019)," Colliers stated. "New construction over this period was on average 86.7 percent occupied within a year after each building's completion date, indicating most space was occupied immediately upon or just after being built."

With more than 1.48 million square feet of net absorption, 2019 was the second most active year in the last decade.

Technology and life science firms remain at the forefront of San Diego's build-to-suit development. Apple signed two separate leases in the fourth quarter, totaling 364,000 square feet in UTC with Kilroy Realty Corp. and BioMed Realty Trust. Apple's UTC lease presence now totals 460,000 square feet with three landlords: The Irvine Co., Kilroy and BioMed.

Rancho Bernardo posted the county's highest net absorption in the fourth quarter with 120,000 square feet. This was primarily driven by the completion and occupancy of a 78,000-square-foot, build-to-suit for Mitchell.

UTC had the second highest level of absorption with 108,000 square feet, including Apple's occupancy of 96,500 square feet at Irvine Co.'s Eastgate Terrace project.

The average asking monthly rental rate for Class A office space inched up two cents to $3.43 per square foot, per month after reaching its all-time peak of $3.41 per square foot, per month in the third quarter of 2019, according to Colliers.

The report also found the average asking rates for the office market overall increased to $2.81 per square foot, per month in the fourth quarter -- the highest rate on record.

San Diego's military presence continued to thrive with an estimated $51 billion impact on the San Diego economy, Colliers said. The Pentagon's spending alone in San Diego County increased $1 billion from last year.

Between December 2018 and December 2019, professional and business services led the year-over-year employment gain in San Diego County, adding 9,500 jobs, mostly driven by growth in professional, scientific, and technical services (up 7,500 jobs last year).

The region's unemployment rate was 2.8 percent in December 2019, down from a revised 2.9 percent in November 2019, and slightly below the year-ago estimate of 3 percent, according to Colliers.

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Christopher Reutz

Research Director

San Diego

Since 1996, I have consistently achieved success in assisting both internal and external commercial real estate (CRE) clients by providing them with timely and accurate market statistics, trend analysis and relevant reporting.

My goal is to continuously work toward efficient and better ways to accelerate the success of clients.

My specialties include commercial real estate (CRE) market research, statistics, data and analysis; database administration; geographic information systems (GIS); marketing and reporting.

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Andy LaDow

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Andy started his commercial real estate career in 1984 in market research with then Coldwell Banker (now CBRE) in Downtown San Diego. Andy spent 12 years at CB as an office broker. Andy was also a Senior Vice President at Irving Hughes and in 2004 became a partner at BRE Commercial which subsequently became Cassidy Turley, DTZ, and now Cushman & Wakefield. Andy has received numerous Top Producer awards throughout his career.

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