MARKET DRIVERS
Vacancy rates continue to rise throughout the San Diego Office market, increasing 70 basis points (bps) year-over-year (YOY) to 12.1%. Last quarter, total availability rates peaked at 19.5%. Total availability fell slightly quarter-over-quarter (QOQ) to 19.1% but remains significantly higher than the regions 5-year average of 17%. Additionally, leasing volume for 1Q24 totaled 1.3M SF, down 42% YOY.
New developments have been a primary factor in the increase in both vacancy and availability rates. Over 400k SF of new office developments were delivered in 2023, with a large injection of new construction scheduled for delivery in 2024.
Following a year of historically low levels of sales volume in 2023, 1Q24 posted 387K SF in sales volume. This fell roughly 39% YOY and trails the region’s 5-year quarterly average of 1.3M SF.
ECONOMIC OVERVIEW
The unemployment rate in San Diego County was 4.7% in February, above the 3.7% estimate from a year ago and steady month-over-month. The county added 6,000 jobs between January and February in total nonfarm employment. This compares with an unadjusted unemployment rate of 5.6% throughout the state and 4.2% for the nation in the same time period.
Professional and business services led all industries with an addition of 3,100 jobs, bouncing back from the previous month’s decline of 3,600 jobs. Year-over-year, Private education and health services led all sectors adding 15,000 jobs.
NEAR-TERM OUTLOOK
Investment sales activity is anticipated to become more active in the second half of 2024, as the Federal Reserved has signaled plans for possible rate cuts before years end.
A large amount of new office supply is expected to be delivered this year, most of which is still available for lease. In turn, vacancies are expected to grow. Majority of the new product coming online this year is concentrated in the Downtown submarket, which is already experiencing elevated vacancy rates of 27.6%.
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