SAN DIEGO—The San Diego office market continues to improve with solid positive net absorption in the second quarter of 2015. This according to a report released by Kidder Matthews based on research from Co-star.

The office vacancy rate in the overall San Diego market dropped further, to 11.29% from 11.49% at the end of the second quarter. Net absorption doubled this quarter, with 367,174 square feet of occupancy gains. Construction activity remains fairly flat, with no buildings delivered to the market yet this year, however, 740,336 square feet is currently under construction. The San Diego County unemployment rate sits at 4.9%, a 0.3% decrease from last quarter, and down 1.4% from a year ago.

class A office space vacancy increased slightly to 9.8% from 9.5% during the past quarter and availability increased slightly from 13.3% to 14.4%. Net absorption for class A space this quarter was 49,345 square feet, with 552,942 square feet of leasing activity, pushing year-to-date class A leasing over 1.1 million square feet. Office lease rates for class A average $2.95 per square foot across the San Diego market, an increase of 5% over the past year. Users seeking class A space pay a $0.77 per square foot premium over class B and C space, on average. Demand for high quality space continues to be strong, providing landlords the opportunity to drive rates and pull back on concessions. Markets such as Del Mar Heights and UTC in particular have witnessed lease rate increases in excess of 20% over the past few years, leaving many tenants facing lease renewals with “sticker shock” as they prepare to navigate the market.