SAN DIEGO—2018 is poised to be a strong office-leasing year for San Diego, based on current tenant demand, limited new construction and steadily increasing rental rates, JLL EVP Tim Olson tells GlobeSt.com. According to the firm's Q4 2017 office report for the market, with limited supply, asking rents are in position to further increase, while construction for low-rise speculative and build-to-suits attracted the majority of preleasing leasing activity in 2017.
The report also revealed that converted and retrofitted buildings are helping to satisfy big-block demand in I-15 Corridor and North County West clusters. We spoke with Olson him about the report and the submarkets where space is in greatest demand.
GlobeSt.com: Where else besides the I-15 Corridor and North County West are tenants seeking large blocks of space?
Olson: We are also seeing large tenant demand in the 40,000-square-foot-to-150,000-square-foot range picking up in Sorrento Mesa, UTC and a few in Mission Valley. The requirements noted above are a mix of consolidations in order to improve efficiencies, company culture, quality of amenities and, in turn, better employee retention and recruitment. Other requirements are the result of organic company growth. The life-science market is also seeing large tenant demand in the Torrey Pines, Campus Point/UTC and Sorrento Mesa submarkets.
GlobeSt.com: Why are low-rise buildings attracting tenants in this market?
Olson: Low- and mid-rise buildings are attracting tenants because they tend to have larger, more efficient floor plates, which are desirable for larger users. Many low-rise and mid-rise buildings have been repositioned over the last few years and are adding more tenant amenities and services on-site, which help to drive tenant interest and leasing demand.
GlobeSt.com: Are there any emerging office submarkets in the county?
Olson: Kearny Mesa is an emerging submarket that we are watching. It has had two consecutive years of over 180,000-square-feet of positive absorption (totaling over nearly 450,000 square feet in the two-year span). Additionally, Kearny Mesa is one of the three submarkets with single-digit direct vacancy in the county and no new ground-up developments, so rents most likely will go up in 2018. Owners are also tracking the trend of flex office being converted into creative office with the Aero Vault building.
GlobeSt.com: What else should our readers take away from this report?
Olson: 2018 is poised to be a strong leasing year based on current tenant demand, limited new construction and steadily increasing rental rates. High-quality second-generation office space continues to lease faster than “shell” or very dated office space as tenants continue to be delayed in executing on new-space acquisitions and are an easier path to occupancy for many tenants. Should the life-science market continue to perform at record levels, we will also continue to see office inventory be converted to accommodate life-science users, thus reducing office inventory.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
