THE SAN DIEGO Office market recorded approximately 7.5M SF of leasing volume, reflecting almost 50% increase when compared to last year. Activity was most notable during the second half of 2021. The tech industry and healthcare sector has accounted for a large portion of the year’s activity, with multiple commitments from Apple as well as biotech firms such as DermTech and Tandem Diabetes.
RENT growth in the office market is still below the five-year average but the worst of the losses since the beginning of the pandemic have ended for the most part, as we saw a slight increase in rental rates by the end of this year when compared to last year. Even Downtown returned to positive rent growth, amidst having the highest vacancy and availability rate in the county.
SAN DIEGO has seen a significant rise in office purchases during the past year, recording a record post-recession sales volume of $2.7B. Many buyers are looking to repurpose older properties to suit the growing needs of life science and technology companies. Life science in particular has fueled office acquisitions in neighborhoods such as Sorrento Mesa and University Town Center to accommodate the increase in demand in that area.
ON THE strength of 15,000 new jobs in the county, the San Diego unemployment rate in November dropped to a pandemic low of 4.6%, down seven basis points from 5.3% month-over-month. This compares with an unadjusted unemployment rate of 5.4% for California and 3.9% for the nation. Driving the majority of the job additions in the county were retail trade with notable advancements in general merchandise stores (up 2,200) and clothing stores (up 1,600).
E-COMMERCE and online retail are expected to have record years, reflecting in the employment gains in transportation and warehousing. Additionally, the thriving life sciences sector is driving growth of high-paying, quality jobs that have a significant effect on the rest of the local economy, as every job in R&D supports additional jobs in supportive industries.
DECISION makers seem to be more comfortable making long-term leasing decisions again whether it is moving forward to lease more space or finding that remote working has performed well and relinquishing space they no longer need. However, because of the new wide-spread variants of the COVID-19 virus, there is still a degree of uncertainty around the pandemic’s long-term effect on office space use.
WHILE availability is still well above normal levels when compared to the start of 2020 before the pandemic, this could be due to the construction pipeline being at post-recession highs with almost 4M SF currently underway and over 2M SF delivered in the past two years. As many of these projects are available with no commitments, there may be some upward pressure in vacancy rates in the coming quarters.
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