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2020 Q2 Office San Diego Market Report

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Office demand posts downtick amid COVID market conditions

Behind the Numbers

  • A second consecutive quarter of negative net absorption countywide totaled 214,665 SF in Q2.
  • Rental rates remain strong. Class A average asking rental rates increased to $3.43/SF/month – a $0.03 increase. Overall average rates for all classes increased by $0.02 to $2.93/SF/month – the highest rate on record.
  • Countywide overall vacancy increased to 11.0% in Q2, from 10.7%in Q1.

Net Absorption

Most of the Q2 2020 negative absorption of 214,665 was in Class B and C product with 178,809 SF and 55,752 SF of negative net absorption, respectively. On the contrary, Class A positive absorption equaled 19,896 SF.

The drop in demand was concentrated in Kearny Mesa (-66,060 SF), Mission Valley (-60,880 SF), and Rancho Bernardo (-58,950 SF) posting the most negative net absorption. The largest recorded move-out was in Kearny Mesa and consisted of the remaining 50,648 SF of the 272,905 SF Sunroad Centrum building formerly occupied by Ashford University.

While Q2 continued a trend of decreasing demand started in Q1, its diminished activity was still less than half the space lost in Q1 (-433,629 SF) bringing year-to-date net absorption to a negative 648,294 SF. It is likely that the second half of 2020 will see additional negative demand as a result of the effects COVID-19 has on the economy and specifically office tenants.

Continued negative net absorption will be dependent not only on office closures, which is currently affecting some smaller-sized tenants, but a sizable drop of office leasing activity. Leasing activity tends to precede net absorption for several quarters following the quarter the leases were signed, as tenants eventually take possession of their space.

In Q2, leasing activity of just under 790,000 SF was at its lowest level in the last two decades (as far back as this statistic has been tracked). Leasing activity had seen a slight drop in Q1 2020, but Q2 saw a 54% drop in leased space compared to the prior quarter and a 64% drop compared to the average quarterly leasing activity of 2.2 million SF over the past two years.


The countywide vacancy rate of 11.0% in Q2 2020 is a 25-basis point (BPS) increase from the prior quarter. Direct vacancy increased to 10.2% (+19 BPS) and sublease vacancy increased to 0.8% (+6 BPS).

During past commercial real estate down markets, attention has been focused on sublease space that tends to increase significantly during these periods. This was especially true during the last recession (2008-2009) and the tech bubble (1999-2000). During this current COVID-19 economic slowdown, the total amount of vacant sublease space stands at 691,217 SF – the highest level since Q2 2017 (726,346 SF). However, the amount of sublease vacant space has been increasing since Q2 2019 and the current amount of vacant sublease space is only 7% higher than the average of the last four quarters.

Over the next few quarters, it is worth watching the increase in available sublease space, which appears to be picking up pace. Available sublease space includes space that is actively being marketed regardless of whether it is currently vacant or not. Countywide, available sublease space of nearly 2.1 million SF has increased by 19% over the average of the past eight quarters. This is approaching the highest level of sublease space since Q3 2018-Q1 2019 where it averaged nearly 2.4 million SF.

New Supply

No new buildings were completed in Q2 2020. However, there are currently 11 projects totaling nearly 2.4 million SF under construction countywide. Some of these projects include three being developed by Kilroy Realty: One Paseo - a two-building 288,484 SF project in Carmel Valley (90% pre-leased), the 160,400 SF 9455 TCD building in UTC preleased to Apple, and the 204,754 SF 2100 Kettner building in Downtown San Diego. BioMed Realty is constructing Apex, a 204,000 SF building in UTC, preleased to Apple. Lincoln Property Company is developing two buildings in the Aperture Del Mar project in Carmel Valley, totaling 217,235 SF. Stockbridge Capital broke ground on the 750,000 SF Campus at Horton on the site of the former Horton Plaza in Downtown San Diego.

By year-end, nearly 30% (706,484 SF) will be completed. Another 1.4 million SF will be completed next year, making 2021 the most active year for new office construction since 2008.

New ground-up construction has been subject to high demand. However, the current COVID-19 pandemic will likely delay the start of new projects that are proposed throughout the county until there is a better clarity on office space demand post-pandemic.

Trends, Forecast & Outlook

Robust demand in the life science sector is driving up demand for more buildings that will accommodate laboratory and R&D space. Several flex/R&D projects are currently under construction or near breaking ground in Torrey Pines and Campus Point/Eastgate. However, there has been a shift



2020 Q2 Office San Diego Market Report

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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 is the Regional Managing Director for San Diego County. He oversees all brokerage operations for the three Colliers offices in San Diego County. Andy has over 33 years of brokerage production experience providing client solutions on complex, high-value corporate offices lease, purchase, and build-to-suit transactions. Andy is focused on expanding Colliers’ unique culture and delivering best-in-class client resources to each and every client relationship.

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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