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San Diego Office Market Report

3rd Quarter 2022

Posted In — Market Research | Market Report

MARKET DRIVERS

Although sublease space was decreasing the second half of 2021, it has been on the rise again in the past year. The region experienced the highest amount of sublet space on record in 3Q with 2.5M SF on the market. The wavering trend of sublease availabilities over the past couple years indicates there is no one-size-fits-all solution for businesses as the effects of the pan-demic wear on.

The volume of leasing activity in 3Q dropped over 50% YOY posting at 1.2M SF, the lowest level experienced since the end of 2020. The average lease signed over the last year is approximately 10% smaller prior to the pandemic.

While the office market saw a significant rise in investment flow in 2021, activity has slowed somewhat the past few quarters in 2022 amid high interest rates. However, due to the slight discount in prices when compared to other SoCal coastal markets, investors remain confident in the San Diego market.

ECONOMIC OVERVIEW

The San Diego County unemployment rate in August was 3.4%, a sharp decrease from the YOY estimate of 6.5% and is on par with pre-pandemic levels. It is up three basis points month-over-month, adding 6,600 jobs within the last month. This compares with an unadjusted unemployment rate of 4.1% for California and 3.8% for the nation during the same period.

Increased leasing activity among tech firms and life science firms have been driving demand in the market and hiring will continue to rise as these tenants expand further. Tech giant Apple acquired Rancho Vista Corporate Center in 3Q and is now committed to having 5,000 workers locally by 2026.

NEAR-TERM OUTLOOK

Recent leasing activity highlights the trend of companies migrating from the urban to the suburban markets in the county for employee proximity and more amenities. With the rise in crime rates and homelessness in Downtown San Diego, the submarket may continue to bear the brunt of the post pandemic woes.

Although the San Diego Office market had shown recent signs of a turnaround from the pandemic blow, tenants are still relinquishing unused office space. As more leases set to expire, firms are likely to take up less space as they renew or relocate.

 
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