SD Office Quickly Achieving '07 Pricing

McNamara: “San Diego County has considerably less developable land compared to a few years ago, and that, paired with continued strong demand, has produced a balanced market with positive absorption.”

SAN DIEGO—Especially in North County San Diego, office valuations are rising, which may influence those who have been holding on to sell to confident buyers eager to pay top price, Amy McNamara , VP of Colliers International ‘s San Diego region and part of its private-client investment team, tells GlobeSt.com. After the firm recently reported a slight uptick in office vacancy here, we spoke exclusively with McNamara about the relationship between office vacancy and deliveries as well as her expectations for the market in 2016. GlobeSt.com: Is the uptick in office vacancy in San Diego due mostly to new construction being delivered? McNamara: The increase this quarter was due to the completion of a speculative 76,760 square foot, class-A office building located in the Heights @ Del Mar . With its addition, there was more than 71,000 square feet of negative absorption recorded countywide. This, however, is not an indication that new supply will outpace absorption next year. There is strong demand in the class-A market and the higher vacancy created this quarter will level out in 2016. GlobeSt.com: What is the relationship between new supply, absorption and vacancy in this market? McNamara: The best description for this market is “balanced.” In 2015, there was more than 1.2 million square feet of new construction completed that was met with strong demand. Even though new construction is at its highest level since 2009, there is no fear of overbuilding as was the case in last expansion cycle prior to 2007. San Diego County has considerably less developable land compared to a few years ago, and that, paired continued strong demand, has produced a balanced market with positive absorption. GlobeSt.com: What are your expectations for the above factors in the San Diego office market in 2016? McNamara: All signs are indicating that 2016 is on track for another strong and steady year for the office market. Less than 200,000 square feet of new supply is currently under construction, and short supply of available land will keep new inventory in balance. Over the next two years, new product will be a combination of speculative construction and repurposing of well-located industrial space. We have already begun to see repurposing with projects like Atlas on Sea Otter Place in Carlsbad and the Yard on Oberlin Drive in Sorrento Mesa. Demand since 2014 has been extremely strong and will continue into 2016 and likely even 2017. Demand will keep pace with new supply, producing another year of positive absorption. GlobeSt.com: What else should our readers know about the San Diego office market and deliveries? McNamara: We are quickly achieving peak 2007 pricing for office properties, especially in North County. This is great news for owners who purchased properties at the height of the market a few years ago and have held ownership. Owners may be inclined to sell, and there are many confident buyers eager to pay top price. As rents continue to increase, many small to medium-sized businesses are finding it’s a better investment to own than lease.