New Report Cites Improving Office Market

SAN DIEGO-A new report by Encino-based Marcus & Millichap points to an improving office market for San Diego County, with the brokerage’s researchers predicting a decrease in vacancy levels and an increase in rental rates and sales prices by year-end.According to the recently released data, office vacancy is expected to decrease 50 basis points by the end of 2004, wrapping up the year at 11.9%. In the class A sector, positive net absorption has been recorded every quarter since the end of 2002, with Marcus & Millichap researchers noting that overall class A vacancy has decreased 400 basis points over the past 12 months, to its current level of 14.4%. As a result of the decreasing vacancy levels in the San Diego County office market, rental rates have been on the upswing, with the Marcus & Millichap report pointing out that “effective rents are poised to move up by 4% this year, due to improving market conditions.” The firm’s researchers say that office properties in the North Coastal submarket have experienced the greatest increase in asking rents, with a rise of 7% since 2003. They now stand at $2.37 per sf, according to the Marcus & Millichap data. Sales prices have shown an even bigger gain than rental rates, as Kent Williams, first vice president and regional manager of Marcus & Millichap’s local office notes. “Forecasts call for sales prices to climb 12% this year,” he says. Indeed, the data reports that median sales prices have increased to $170 per sf. Employment figures have played a role in the region’s improving office fundamentals, as job growth here is expected to rise 2.3% in 2004, which is up from 0.7% in 2003. Of the 28,800 total jobs expected by year-end, 9,000 will be created in “office using” industries, according to Marcus & Millichap’s researchers. However, this figure does reflect a slight dip since last year, when the office using employment sector gained 10,000 positions.