San Diego office market picks up demand after six challenging quarters
Since the beginning of the COVID-19 pandemic in Q1 2020, countywide office demand every quarter has been significantly negative, with minimal positive net absorption that began to emerge in Q2 2021. Q3 2021 marked a significant turnaround in demand with over 260,000 SF of net absorption – levels nearing that of 2019 and 2018. It appears San Diego has turned the corner and is starting to see an uptick in demand that has resulted in new Class A speculative projects under development by companies such as Kilroy Realty, American Assets Trust, and Lincoln Property Company. The traditional office inventory has been slowly shrinking over the past two years as premier life science developers have snatched up key properties for redevelopment or renovation into buildings featuring wet lab and biotech improvements that will accommodate San Diego’s accelerating life science industry growth.
- San Diego County has recorded a second consecutive quarter of positive net absorption (+269,099 SF), continuing a recovery from five prior quarters of negative demand.
- Countywide overall vacancy decreased 32 basis points (BPS) in Q3 to reach 13.54%.
- Sublease vacancy fell 26 BPS to 0.89% - the first time it has been below 1% since the COVID-19 pandemic began.
- Asking rental rates across all classes continue to increase, reaching countywide average of $2.98/SF full service. Core Class A submarkets such as Carmel Valley ($4.34/SF) and UTC ($3.93/SF) are the market leaders.