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7/11/22
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This report was provided by real estate services firm Kidder Mathews
San Diego Office Market Update 2nd Quarter 2022
MARKET DRIVERS
Recent leasing activity highlights the trend of companies being attracted more to the suburban markets in the county, closer to where their employees live to help prioritize work-life balance. Downtown has been experiencing the repercussions of the migration away from the urban market, with availabilities sitting at an all-time high of over 40%.
Sublet space was on the decline for the second half of 2021 but is on the rise again in the first half of this year, back up to almost 2 msf. The continued ebbs and flows of the level of sublease availabilities in the past two years indicates there is no one-size-fits-all solution for businesses, as they continue to figure out the best long-term approach for their operations.
The market has seen a significant rise in office purchases during the past year, especially as investors look to repurpose older properties to suit the growing needs of life science and technology companies. One of the most active investors in San Diego over the past few years has been Alexandria Real Estate Equities, investing in approximately $1.2 bil over the last three years.
ECONOMIC OVERVIEW
The San Diego County unemployment rate in May dropped to a 20-year low of 2.7%, a sharp decrease from the YOY estimate of 6.6% and is lower than pre-pandemic levels. It is down three basis points month-over-month, adding 8,400 jobs within the last month. This compares with an unadjusted unemployment rate of 3.4% for California and 3.4% for the nation during the same period.
The Countys month-over-month job gains were led by the leisure and hospitality services with 3,200 jobs added, driven by the influx of tourists for the summer season. Increased leasing activity among life science firms and tech firms have been driving demand in the market and hiring will continue to rise as these tenants expand further.
NEAR TERM OUTLOOK
Employers across the tech industry and other office driven industries are finding it harder to fill the seats of in-office open positions, competing with those who are offering fully remote positions that many in the labor force now prefer. While remote opportunities are still leading the way, many big tech companies such as Google and Tesla have asked employees back to the office and employees have followed suit.
The recent trend of converting outdated office and industrial buildings into lab and life science campuses has grown over the past year, however, it may slow down especially as the venture capital industry is pulling back and funding has slowed in recent months across the country.
NET ABSORPTION reached a post-pandemic high of 878k sf.
RENTAL RATES soared to a record high of $3.07 PSF on a full-service basis.
AVG SALE PRICE PER SF posted at a healthy $417/SF.
Source: CoStar, EDD, SDBJ, TechCrunch
This report was prepared by Kidder Mathews Director of Research Gary Baragona
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