SAN DIEGO—With 776,309 square feet of office space delivered in San Diego during Q2 and more than 1.6 million square feet under construction, according to Colliers International's Q2 office report, will absorption keep pace? The report indicates that demand year-to-date has been keeping pace with new supply, with net absorption totaling just over 738,000 square feet. But will this absorption pace continue?
Marc Posthumus, VP with Colliers, believes it will. “Absorption will continue to keep pace, since this expansion cycle is vastly different from the last because there is still very little true speculative construction,” Posthumus tells GlobeSt.com. “In the last cycle, developers were in a mad rush to get office developments out of the ground, and now they are cautiously optimistic.”
This is good news since there has been a surge of new office development here, with more projects currently under construction than completed from 2010 to 2014, according to the report. Strong class-A absorption continues to outperform other classes in office, and vacancy continues to trend downward despite a slight uptick in Q2.
The vacancy rate rose slightly during the quarter from 12.1% in Q1 to 12.2%, Colliers reports. Even though absorption was a positive 328,045 square feet in Q2, new construction of 419,309 square feet exceeded demand, causing the uptick.
New supply for the county during Q2 includes the massive renovation of a former industrial building in Carlsbad to produce MAKE, a 177,269-square-foot, class-A creative-office project developed by Cruzan. Additionally, another 242,040 square feet was completed in Central County. New development is primarily build-to-suit, but speculative activity is expected to pick up over the next few years, according to Colliers. One major spec project nearing completion in early Q3 is the 305,952-square-foot One La Jolla Center office tower being developed by the Irvine Co. in the UTC submarket.
Construction activity is picking up pace countywide, but not nearly at the same levels as it was before the recession. Colliers reports that the supply pipeline is not at a state of overbuilding as it had been prior to recession, so vacancy levels should be relatively low for the foreseeable future.
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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.
