The rising absorption and declining vacancies during the first half of 2005 translated into higher rents for the county, according to the Burnham report."As the 'quality' available space continues to get leased and overall tenant demand remains steady, the San Diego office market is establishing a strong foundation," says Mark Wayne, SVP and principal with Burnham.
The report shows that 940,000 sf of office space was absorbed in the first half of the year, with 510,000 sf of that absorption taking place in the second quarter. Should this pace continue, total absorption will place second to the rate in 2000, when demand for office space topped over 4.6 million sf. The central suburban and north city regions posted the most activity, with 550,112 sf and 356,245 sf absorbed, respectively.
Investment remains strong in San Diego County, with $900 million worth of office transactions closed in the first two quarters. According to Wayne, smaller office buildings or office condominiums are being sold to buyers who have previously rented space.
These 1,000-sf to 5,000-sf parcels are priced at approximately $300 per sf, but business owners are finding that, even at those prices, owning is more economical than renting, Wayne tells Globest.com. "You can take advantage of appreciation, pay down debt and it gives sole proprietors and small businesses the opportunity to invest," he says.
Office vacancy in San Diego is currently at 11.9%, up from 11.7% at year-end 2004. Wayne tells Globest.com that the increase in demand for office space comes not so much from increased employment rates but rather larger companies in search of more room. Eric Vann, senior associate with Burnham, expects the increased activity should put the county at a 10% vacancy rate by the year's end, which would mark the third time in 15 years that vacancy rates dipped to near or in the single-digit range.
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