If anything ends the good times in the short term, it will be a combination of the dot-com meltdown, tightening capital markets and venture capitalists skittish about the national economy, according to David B. Marino, EVP and principal of San Diego-based Irving Hughes.
"From a owner perspective, the real estate good times, as they're being referred to, are being affected by decisions made by corporations--largely technology companies--to right size," says Marino. "These companies are re-evaluating their revenue models and forecasts, determining how many critical employees and how much cost-effective space is required to achieve profitability and survive during slowing economic conditions."
And this, he says, has little to do with the state's energy problems. "It's due to the fact that we are no longer experiencing the hyper growth of the last two to three years," he says. "As a consequence, the gravy train for owners is pulling off the tracks."
Marino says the energy issue will hurt companies if it's not resolved in the next two years. He notes that some four million sf of space has been sublet in Silicon Valley over the last three months, as Internet companies bailed out of their spaces.
About a million sf of sublease space has been dumped in San Diego County, specifically in Sorrento Mesa, UTC, the I-15 corridor and Carlsbad adding two percentage points to the vacancy factor.
Rolling blackouts that last into the summer could turn the power issue into an actual crisis.
"The situation will become a crisis to the extent that rolling blackouts affect San Diego in the coming summer," he says. "Companies, particularly heavy manufacturing, are reliant on a consistent supply of electricity. A blackout would cost a week, even months of work."
Such downtime could result in "enormous losses to production and productivity that businesses just can't afford especially in the current economic climate," he says. And that could force large number of employers out of the state, he says.
"At some point, business executives, who are looking out for the interests of shareholders and suppliers, will turn to areas that have more reliable sources of power," Marino says. He estimates that it typically takes two years for a corporation to relocate out of state, from the time the decision is made to exploring potential locations to acquiring facilities and setting up business again.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
