Local Market Stabilizes, Flexes Its Considerable Muscle

SAN DIEGO-While much of the recent talk locally has been of a housing bubble, many industry experts and insiders are unwilling to raise the white flag just yet. A report released by CB Richard Ellis and a recent economic roundtable discussion revealed that all the news is not doom and gloom, particularly in the office sector.According to Gary Baragona, SRC with CBRE, activity in the office market remained steady during the fourth quarter. The vacancy fell from 9.6% during the fourth quarter of 2004 to 8.9% in the same timeframe in 2005.In addition, net absorption levels topped 530,000 sf, a significant hike from the three-year quarterly average of 170,000 sf of net absorption. For the year, net absorption totaled 1.8 million sf.Asking leasing rates also continued gaining traction. The average asking lease rate increased from $2.13 to $2.20 during the fourth quarter. According to Baragona, it was the fifth straight quarterly increase. The 12-month rent growth approached 13.6%.Construction held steady with 2.8 million sf under way. For the quarter, 205,000 sf of office projects were completed, bringing the year-end total to more than 1.1 million sf of office product hitting the market.Rand Sperry, co-founder of Sperry Van Ness, was outspoken about the strength of the real estate market at a recent panel discussion addressing economic and real estate issues concerning San Diego County. The Commercial Realtors Association of San Diego held its 2nd Annual Economic Outlook at the La Jolla Marriott Hotel. Also on the panel were Gary London of the London Group Realty Advisors and Greg Smith with the County of San Diego Assessor/Recorder department.Sperry pointed to an increase in value and low vacancies in office product, as well as other sectors. “In the last 30 years, this is the best real estate market conditions we have ever had,” Sperry said. “Why? Partly because the stock market bombed and real estate offered security. Many portfolios have increased real estate allocations from 5% to 10%.”Sperry added, however, that this could be a good time to dispose of property. “A future drop in real estate value could end up being a bigger loss than paying taxes,” he said. He added that he is in the process of selling his California properties and looking to build his portfolio outside of the state.London concurred that while the San Diego real estate market has been at a fever pitch of late, “the party has to end. I’m optimistic, but I’m the reality guy. Solving city woes will take a Herculean effort. We can’t divorce fiscal reality from economic prosperity.”London added that it’s not time to count San Diego out. He said the local economy is one of the nation’s strongest and has “proven to be resilient.”