San Diego Vacancy Tells a Different Story

SAN DIEGO-After two years of steady new development deliveries and increasing sublease options, supply dynamics have stabilized, rents have bottomed out and landlords have begun to scale back tenant improvement allowances at top office properties across the US and Canada, according to the inaugural North American Skyline Review from Jones Lang LaSalle. As a result of these supply-demand dynamics, investor interest for this type of product has heated up, causing activity and pricing to jump and yields to compress. But that isn’t the case in San Diego.

San Diego’s CBD, the Skyline buildings—defined as the top 20 class A and B high-rise office projects located Downtown–tell a different story. After 52,000 square feet of negative absorption, total vacancy in the Skyline inventory increased in 2010 to 17.6%, 70 basis points higher than the fourth quarter of 2009, according to JLL. Downtown law firms and financial services companies have contracted and consolidated, increasing overall submarket vacancy despite the moderate surge in government and education leasing activity over the last year.