The recovery in occupancy â about 6% of the overall ... Scripps Ranch posted the most negative net absorption (-67,881
Research & Forecast Report
SAN DIEGO COUNTY | OFFICE Q3 2017
Office Demand Shifts Into Positive Territory Behind the Numbers >> Over half a million square feet of net absorption moved the year-to-date total to a positive 395,360 SF. >> Class A average asking rental rates reached $3.23/SF/month, equating to the peak rate last reached in Q1 2008.
MARKET INDICATORS All Office Markets & Classes, Q3 2017
Q3 2017
Q3 2016
11.54%
12.27%
Net Absorption SF
566,659
284,480
Trend Forecast & Outlook
Under Construction SF
313,074
260,797
San Diego County started off with negative demand for the first half of 2017, but turned around significantly in Q3. While most of the demand was attributed to absorption in newly constructed buildings, there was still significant demand in the remaining inventory.
Average Asking Rent (FSG)
$2.64
$2.55
>> At 466,858 SF, this was the most new construction completed in the last eight quarters.
Absorption still continues to trend positively, albeit at rate that is slower than the years after the last recession (2010-2016). The recovery in occupancy – about 6% of the overall inventory – during this period was focused on primarily Class A space, which was most sought after. As vacancy continues to decrease, the rate at which it decreases will be much lower and often times noted by some quarters where there will be negative demand. But all signs continue to point to a downward vacancy trend for the foreseeable future. Net absorption for 2017 will be strong, posting between 500,000 SF to 750,000 SF for the year. Demand won’t nearly have the magnitude as the years from 2010 to 2016 when absorption averaged 1.1 million SF annually. Vacancy at year-end will be around 11%.
Net Absorption
Overall Vacancy (incl. sublease)
Net Absorption YTD 2017
395,360 SF Unemployment SD County - Aug 2017
4.7%
Change
Total Vacancy Rate All Product Types - YTD 2017
11.54%
Under Construction YTD 2017
313,074 SF
JOB GROWTH Source: Bureau of Labor Statistics, 12-month change (8/2016-8/2017), San Diego County
Total Job Growth - Last 12 Months
After two consecutive quarters of negative net absorption in 2017, demand spiked up to 601,181 SF of positive net absorption in Q3 2017. Tenants occupying newly completed construction made up most of the absorption (+356,262 SF), but nearly 250,000 SF consisted of demand in preexisting inventory. UTC posted the most positive net absorption (+389,345 SF) in Q3. Most of this was caused by the occupancy of Illumina into their new 316,262 SF three-building i3 campus, developed by BioMed Realty, on the eastern end of Executive Drive. Additionally, Wells Fargo occupied 45,480 SF at One La Jolla Center. Scripps Ranch posted the most negative net absorption (-67,881 SF) in Q3. This was driven by 111,990 SF vacated by Lockheed Martin in two buildings of the Horizon Tech Center on Meanley Drive.
colliers.com/sandiego
19,200 new jobs
100
new jobs
0.0% Professional & Business Services
increase
1.3% 2,900
new jobs
4.6% Financial Activities
San Diego Historical Office Market Trends
San Diego Historical Office Rental Rates Average Asking Monthly Rate per SF, Full Service
Vacancy
New Supply
Countywide vacancy of 11.5% in Q3 amounted to an 18 basis point decrease from the prior quarter and a 73 basis point decrease from a year ago. The vacancy rate was comprised primarily of direct vacant space (10.7%) with minimal sublease space (0.8%).
In Q3, a total of 466,858 SF was completed countywide. This consisted of the aforementioned 316,262 SF i3 campus for Illumina, American Assets’ 90,596 SF two-building Torrey Point project in Carmel Valley on Carmel Mountain Road, and a 60,000 SF building in the North City project in San Marcos. The North City building on 111 Campus Way had 40,000 SF of absorption in Q3 when Pima Medical Institute occupied the space they had pre-leased. North City’s leasing representation is comprised of the Colliers International team of Gary Williams, Chris Williams and Tucker Hohenstein.
Overall vacancy in Downtown stood at 15.7% - up 33 basis points from Q2 and due to 34,522 SF of negative net absorption. By mid-2018 when the City of San Diego relocates to 101 Ash Street (314,545 SF) along with a continued positive demand trend, vacancy will reach around 11% or less. Countywide Class C vacancy stood at 7.7% at the end of Q3. The continued demand in this segment is driven in part by average asking rents are 24% lower than Class B. Class A and Class B vacancy rates stand at 12.3% and 12.4%, respectively.
As of quarter-end, there were six buildings totaling 313,074 SF under construction. Of that total, 50,536 SF is expected to be completed by year-end. This includes a 13,200 SF building in La Mesa, Westfield UTC’s shopping center expansion which includes a 32,336 SF office building for CBRE, and finally 5,000 SF of creative office space in Mission Valley on Camino De La Reina called The Millennium. Additional projects expected to be completed by mid-2018 include a 48,954 SF creative-office building on Aston Avenue in Carlsbad, the 63,584 SF creative-office building at Makers Quarter in Downtown, and a 150,000 SF office speculative office building being built by Alexandria Real Estate Equities at 9625 Towne Centre Drive in UTC.
Significant Office Activity - Q3 2017 Leasing Property/Address
Tenant
Submarket
Class
Size (SF) Deal Type
10300 Campus Point Dr
Amazon
Campus Point
A
106,874
3430 Carmel Mountain Rd
Tsunami ARVR
Carmel Valley
A
32,475
New lease in newly completed building.
9275 Sky Park Ct
Union Bank
Kearny Mesa
A
24,999
Renewal.
3721 Valley Centre Dr
Retrophin
Carmel Valley
A
22,339
Expansion to 45,446 SF in building.
1450 Frazee Rd
UCSD Health Sciences
Mission Valley
B
17,586
Renewal.
5030 Camino De La Siesta
Corinthian Title
Mission Valley
B
12,287
Renewal.
New lease in prior lab/flex space.
Sales Property/Address
Submarket
Size (SF)
Sale Price
DiamondView East Village
Downtown
A
313,103
$207,000,000
600 B Street
Downtown
B
359,278
Chancellor Park (2 bldgs)
UTC
B
201,905
Township 14 (2 bldgs)
Carmel Valley
A
126,560
Five Thirty B
Downtown
B
232,936
Plaza 2020
Mission Valley
B
105,796
2
Class
$/SF Buyer
Seller
$661 DivcoWest
Cigna / Cruzan
$109,500,000
$305 Rockwood Capital
Lincoln Property Co.
$97,000,000
$480 The Carlyle Group
Equity Office Properties
$86,500,000
$683 The Irvine Company
TIAA-CREF
$57,700,000
$248 Swift Real Estate Partners
Bosa Development Corp.
$25,175,000
$238 Vista Investment Group
TA Realty
San Diego County | Overall County Research & Forecast Report | Office | Q3 2017
Office Market Overview - Q3 2017 San Diego County | CBD and Suburban by Class EXISTING INVENTORY (SF) Type/ Total Submarket Inventory DOWNTOWN / CBD A B C TOTAL
SUBURBAN
A B C TOTAL
VACANCY (%) Direct
Sublet
Total
NET ABSORPTION (SF) NEW SUPPLY (SF) Avg Current Completed Completed Under Asking Qtr YTD Current Qtr YTD Construction Rate
6,541,356 3,299,151 425,260 10,265,767
7.9% 30.8% 7.8% 15.3%
0.5% 0.3% 1.0% 0.5%
8.4% 31.1% 8.8% 15.7%
8.0% 30.7% 10.2% 15.4%
(27,696) (12,982) 6,156 (34,522)
(60,059) (27,711) 2,767 (85,003)
0 0 0 0
0 0 0 0
63,584 0 0 63,584
$2.98 $2.25 $2.35 $2.58
25,839,614 33,767,662 14,815,258 74,422,534
11.6% 10.1% 7.6% 10.1%
1.7% 0.5% 0.1% 0.9%
13.3% 10.6% 7.7% 11.0%
14.0% 10.7% 7.6% 11.2%
586,844 24,413 (10,076) 601,181
426,217 (41,555) 95,701 480,363
466,858 0 0 466,858
563,293 39,832 0 603,125
231,290 18,200 0 249,490
$3.27 $2.49 $1.82 $2.65
12.8% 12.5% 7.7% 11.7%
559,148 11,431 (3,920) 566,659
366,158 (69,266) 98,468 395,360
466,858 0 0 466,858
563,293 39,832 0 603,125
294,874 18,200 0 313,074
$3.23 $2.46 $1.88 $2.64
SAN DIEGO COUNTY TOTAL (CBD + SUBURBAN) A B C TOTAL
Prior Qtr
32,380,970 37,066,813 15,240,518 84,688,301
10.9% 11.9% 7.6% 10.7%
1.4% 0.5% 0.2% 0.8%
12.3% 12.4% 7.7% 11.5%
San Diego County | Suburban Markets and Submarkets CENTRAL COUNTY
Campus Point Carmel Valley Governor Park Kearny Mesa La Jolla Miramar Mission Gorge Mission Valley Old Town / SA / PL Rose Cyn / Morena Sorrento Mesa Sorrento Valley Torrey Pines Uptown UTC TOTAL
NORTH COUNTY
Carlsbad Escondido I-5 Corridor Oceanside San Marcos / Vista TOTAL
I-15 CORRIDOR
Poway Rancho Bernardo Scripps Ranch TOTAL
620,187 5,228,070 905,176 8,975,800 1,126,217 1,390,849 302,042 6,841,260 2,373,890 859,873 9,260,136 414,099 815,477 1,729,350 5,717,223 46,559,649
0.0% 13.9% 8.0% 8.2% 8.8% 12.5% 6.3% 7.2% 6.0% 2.2% 11.2% 8.5% 9.5% 4.9% 11.0% 9.3%
0.0% 1.6% 0.4% 0.6% 0.8% 0.1% 0.0% 0.5% 0.2% 0.0% 0.8% 0.0% 0.0% 0.3% 0.7% 0.7%
0.0% 15.6% 8.4% 8.8% 9.6% 12.6% 6.3% 7.7% 6.2% 2.2% 12.0% 8.5% 9.5% 5.2% 11.7% 10.0%
0.0% 15.6% 8.4% 9.2% 8.9% 13.9% 6.5% 9.1% 6.2% 2.8% 12.1% 12.6% 10.1% 6.1% 13.7% 10.7%
0 78,103 (384) 36,587 (8,257) 18,305 642 97,060 1,796 4,970 8,149 17,257 4,970 15,904 389,345 664,447
0 12,515 (4,527) 173,445 (20,406) 20,954 10,649 50,492 2,840 25,761 1,016 6,231 (135) 20,033 421,355 720,223
0 90,596 0 0 0 0 0 0 0 0 0 0 0 0 316,262 406,858
0 90,596 0 0 0 0 0 0 9,200 0 0 0 0 0 412,697 512,493
0 0 0 0 0 0 0 5,000 0 0 0 0 0 0 182,336 187,336
$2.49 $4.06 $2.71 $2.20 $3.28 $1.87 $1.14 $2.49 $2.42 $1.80 $2.77 $2.11 $3.63 $2.47 $3.54 $2.87
6,440,707 1,653,278 1,612,097 1,196,677 2,142,603 13,045,362
19.4% 10.6% 4.9% 9.2% 14.9% 14.8%
1.3% 0.1% 0.4% 0.0% 0.0% 0.7%
20.7% 10.7% 5.2% 9.2% 14.9% 15.5%
20.1% 9.1% 5.2% 11.0% 12.6% 14.8%
(42,772) (27,495) (560) 21,350 1,957 (47,520)
4,609 (16,294) (8,872) 21,961 1,816 3,220
0 0 0 0 60,000 60,000
30,632 0 0 0 60,000 90,632
48,954 0 0 0 0 48,954
$2.45 $1.80 $3.47 $1.86 $1.98 $2.37
1,177,227 5,690,220 2,266,904 9,134,351
4.9% 7.0% 18.4% 9.5%
0.0% 3.6% 1.0% 2.5%
4.9% 10.6% 19.4% 12.0%
3.0% 11.1% 16.4% 11.4%
(21,982) 30,408 (67,881) (59,455)
28,826 (234,291) (102,864) (308,329)
0 0 0 0
0 0 0 0
0 0 0 0
$2.17 $2.70 $2.33 $2.50
3.7% 9.5% 6.5%
0.0% 0.2% 0.1%
3.7% 9.7% 6.6%
3.0% 12.1% 7.3%
(20,653) 64,362 43,709
(12,932) 78,181 65,249
0 0 0
0 0 0
13,200 0 13,200
$1.75 $2.43 $2.09
SOUTH/EAST COUNTY East County South Bay TOTAL
2,980,993 2,702,179 5,683,172
Average rental rates are defined as the average asking monthly rate per square foot across all direct available spaces quoted on a “full service gross” basis.
colliers.com/sandiego
3
Oceanside Vista
15,000 professionals in 68 countries on 6 continents
San Marcos Carlsbad
$2.6 billion in annual revenue 2.0 billion square feet managed 72,000 lease and sale transactions
Escondido
I-5 Corridor Rancho Bernardo
Poway Carmel Valley
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colliers.com/sandiego Market Contact ANDY LA DOW Regional Managing Director | San Diego Region +1 858 455 1515
[email protected]
Regional Author CHRISTOPHER REUTZ Research Director | San Diego Region
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Torrey Pines Campus Point/ UTC
Sorrento Mesa
Miramar
Scripps Ranch
East County
Governor Park
Central County
La Jolla
CBD Rose Canyon/ Morena
Kearny Mesa
I-15 Corridor
Mission Gorge
North County South/East County
Mission Valley Pt. Loma/ Sports Arena
Uptown
CBD
South Bay
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SAN DIEGO COUNTY Office Market Areas
