SAN DIEGO-According to a recent research report on San Diego from Cresa, San Diego's forecast for 2013 is that it will ride the national wave in regard to economic trends. The firm notes that the anticipated decrease in government spending related to the defense industry will have an unfavorable effect on San Diego's local economy.

In terms of unemployment, while the rate has dropped throughout the year, Cresa has not seen optimism manifest itself in economic growth in the business sector.

On the construction front, the firm says that new construction has been relegated to fully leased, build-to-suit transactions, not speculative developments promoted by market demand. Thus the vacancy rate continues to drop even as growth remains stagnant.
Oddly enough, the firms says, the perceived value of commercial real estate has increased slightly and cap rates for commercial properties with secure, long term leases continues to be less than 8%. “However, while the actual sale comparables confirm the low cap rates, it has not resulted in higher sale values because the in-place rents have decreased over the last few years.”

Market Trends in the firm's forecast include:

• Asking prices for office product listed for sale have increased approximately 2% for San Diego while the State of California experienced a decrease in asking prices of approximately 2%.
• Although declining actual sale prices have slowed, they are also continuing to decline; specifically, they are off by approximately 3% when compared to the previous quarter and 7% when compared to last year's asking prices.
• Asking prices for multifamily properties are continuing to increase in San Diego. A rise of approximately 3% (year to date) placing the median sale price per unit at $142,000.
• The inventory of available office product for sale, both quantity of listings and dollar volume, has declined by approximately 30% since Q4, 2011.

Tenant's Perspective

“If a tenant desires to own their real estate and control costs over the long term, this is a good time to pursue that desire,” says Cresa. “Attractive interest rates are available to companies with a solid financial statement. Fixed occupancy costs can be achieved below rental costs. As the vacancy rate decreases and less large blocks of space are available, rents will begin to increase. Larger tenants will have less bargaining power than smaller tenants able to locate to multi-tenant projects. Several build-to-suit transactions were completed in San Diego County in 2012 that were the direct result of very few existing facility alternatives.”