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2018 Q4 Office San Diego Region

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Behind the Numbers

  • Q4 2018 net absorption of 344,428 SF capped off a strong year of 912,254 SF.
  • Class A average asking rental rates remained at an all-time peak of $3.31/SF/month, a 1.8% year-over-year increase. The overall average increased by $0.01 to end the quarter at $2.72/SF/month and stood at peak rate recorded 11 years ago (Q4 2007).
  • Countywide overall vacancy dropped to the lowest level in 12 years (10.3%).

Net Absorption

San Diego County net absorption for Q4 2018 equaled 344,428 SF. Class B inventory recorded the most activity with 236,154 SF of net absorption, Class A at 165,464 SF, and Class C with negative
net absorption of 57,190 SF. For all of 2018, net absorption totaled 912,254 SF of which 668,074 SF was in Class B space and another 263,258 SF in Class A space.

The Sorrento Mesa submarket posted the most positive net absorption (+224,639 SF) in Q4. In particular, Sony occupied nearly 116,000 SF at The Park located at 9645 Scranton Road. Curology occupied 54,232 SF at Pacific Technology Center located at 5717 Pacific Center Blvd. 

Scripps Ranch (+81,367 SF) and Mission Valley (+72,593 SF) had the second and third highest levels of absorption, respectively. In Scripps Ranch, TrellisWare Technologies occupied 72,331 SF at Summit Pointe while Horizon Center saw Crown Castle USA moving into 12,561 SF. Major Mission Valley move-ins included Global Equity Finance (20,391 SF) at Mission Valley Crossroads 404, HDR Engineering (15,638 SF) at Tower 591, and C&S occupying 13,670 SF at Mission City Corporate Center.


The countywide vacancy of 10.3% in Q4 2018 is a 34 basis point decrease from the prior quarter. The vacancy rate includes direct vacant space (9.9%) and minimal sublease space (0.4%).

Overall vacancy in Downtown bumped up to 13.3% in Q4, driven by negative net absorption of 104,276 SF. Overall vacancy in the Suburban markets dropped to 9.9% with core submarkets such as Kearny Mesa (7.3%) and UTC (8.8%) posting the lowest rates and Carlsbad (16.9%) with the highest rate. For a third consecutive quarter, Carlsbad – and all other submarkets – posted vacancy rates below 20%.

Countywide Class A and Class B vacancy rates ended the year at 13.1% and 9.1%, respectively. Class C posted the lowest vacancy rate at 7.0%.

New Supply

New construction completions for the quarter included the 60,000 SF creative-office building at Makers Quarter in Downtown (33,806 SF was leased to International Workplace Group) and a 5,000 SF creative-office project at The Millennium in Mission Valley. There are currently seven projects totaling 1.1 million SF under construction countywide, all of which are expected to be completed by year-end. 2019 will have the second highest level of new construction completed in the last nine years.

These projects include a four-building 357,000 SF build-to-suit on Town Garden Road in Carlsbad for ViaSat, a 150,000 SF office building being built by Alexandria Real Estate Equities at 9625 Towne Centre Drive (pre-leased to Takeda), Lift which is a 54,646 SF two-building project on Innovation Way in Carlsbad being developed by RAF Pacifica Group, The Watermark – a 158,994 SF building on Scripps Gateway Court in Scripps Ranch (pre-leased to MedImpact), The Heights at One Paseo - a twobuilding 300,266 SF project being developed by Kilroy Realty in Carmel Valley, Sorrento Summit III – a 28,000 SF project pre-leased to Nuvasive and being developed by HCP, Inc., and a 24,000 SF building on S. Coast Highway 101 in Encinitas.

Prior to the recession, new construction consistently was around two million SF per year. However, over the last decade, annual construction has averaged around 490,000 SF annually. 

Annual net absorption has been consistently strong, outpacing new construction over the last nine years. This is indicative of an office market that is not at risk of being over-built. In fact, of the nearly 1.1 million SF currently under construction, 70% is either pre-leased or build-to-suit.

Trends, Forecast & Outlook

Vacancy will continue to decrease throughout 2019, potentially falling below 10% by year-end. The aforementioned pace of demand exceeding new supply will drive the trend this year. Assuming the local economy continues to remain strong, vacancy could be at its lowest level in 13 years. Additionally, average asking rental rates will continue to increase 3% to 4% by year-end.


2018 Q4 Office San Diego Region

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