AT A SAN DIEGO OFFICE MARKET REPORT FOURTH QUARTER 215
AT A NEW SUPPLY PUSHES VACANCY RATES HIGHER San Diego s regional economy has been buzzing and added a net total of 37,8 jobs in the 12 months ending November 215, or a 2.7% increase over the prior year s reading. The Education & Health Services (9,2 jobs) and Professional & Business Services (8,2 jobs) sector have notably accounted for 46% of the annual employment gains. Even though the 215 employment gains are trailing Moody s Analytics projection, the final month of the year will likely push the job growth rate over their 3.% projection. Meanwhile, San Diego s unemployment rate has dropped 12 basis points over the prior 12 months to 4.8%, and is hovering around its lowest point since 27. SAN DIEGO Office Market Q4 San Diego s office leasing market finished the fourth quarter with 274,695 sq. ft. of direct net absorption, increasing the 215 total to 652,69 sq. ft. Class A product accounted for the bulk of the absorption growth with tenants occupying a net total of 554,812 sq. ft. in 215. Despite the large absorption gains in Class A buildings, the direct vacancy rate increased 9 basis points to 11.%, as construction deliveries outpaced leasing demand. The Class B sector also experienced a direct absorption gain of 219,63 sq. ft. during the fourth quarter, pushing its yearly total back into positive territory with a net 97,797 sq. ft., which helped bring its vacancy rate down 1 basis points to 15.4%. Class A fullservice gross asking rents maintained their steady increase witnessed since their mid- 211 post-recession low, rising 2.45% to $3.14 per sq. ft. during 215. Meanwhile, Class B rents improved 6.6% to $2.35 since year-end 214. New supply additions totaled 963,151 sq. ft. in 215, with the largest construction delivery occurring Downtown when Cisterra Partners completed a 32, sq. ft. build-to-suit for Sempra Energy. One La Jolla Center in North San Diego also finished construction during the year, adding 35,952 sq. ft. of Class A space to the competitive market. At the end of 215, there were eight buildings under construction, including five 1% speculative buildings, largely concentrated in the I-5 Corridor which will add a combined 58,141 sq. ft. of competitive and owner-user space to the market through 217. There are also four buildings in North San Diego that are currently undergoing renovations, which will add another 348,5 sq. ft. of Class B space to the mark et. Looking ahead, the economic outlook remains positive, which in effect will spur demand and preserve negotiation leverage in the landlords favor for the foreseeable future. As a result, expect rental rates to continue to rise in the most pursued submarkets, especially in North San Diego as demand remains strong. in Thousands of SF 4, 3, 2, 1, Office Market Trends Direct Net Absorption Completions Direct Occupancy 96% 94% 92% 9% 88% 86% ANNUAL JOB GROWTH San Diego s economy expanded at a rate of 2.7% (or 37,8 jobs) during the 12 months ending November, which slightly trails the 3.% trajectory for 215. Education & Health Services, Professional & Business Services and Construction drove job growth with a net combined 23,2 jobs added. 12-MO DIRECT NET ABSORPTION The office market recorded its sixth consecutive year of occupancy gains. The I-15 Corridor captured 43% of the 215 absorption gains, but Downtown s Class A sector featured the largest gains compliments of Sempra Energy s build-to-suit. DIRECT VACANCY RATE Despite the healthy annual absorption gains, San Diego s direct vacancy rate increased 2 basis points to 13.4% during 215 as construction deliveries slightly outstripped leasing demand. OVERALL RENTS Asking rents climbed 5.% during 215 to $2.65 per sq. ft. The largest annual rate increase occurred in Downtown, which saw monthly rents grow 1.3% to $2.53 per sq. ft. UNDER CONSTRUCTION New supply will add approximately 58, sq. ft. of competitive and owner-user product to the I-5 Corridor, I-15 Corridor and North San Diego. in 215 Renovation activity has also picked up with 348, sq. ft. underway in North San Diego. 37.8K jobs 653K square feet 13.4 percent $2.65 per square feet 58K square feet -1, 84% 82% 8% *Arrows represent change from previous 12 months 3 PAGE
Q4 SAN DIEGO Office Market HISTORICAL TRENDS & FORECAST Employment Growth AT A Office Employment Growth Breakdown In Thousands 5 25 Office Jobs Added Total Jobs Added/Lost In Thousands 2 15 1 5 Professional & Business Services Financial Activities Information -25-5 -1-5 -15-2 -75-25 Direct Net Absorption Direct Vacancy Rates 2, Class A Class B 24% Class A Class B 1,6 2% In Thousands of SF 1,2 8 4-4 16% 12% 8% -8 4% -1,2 % $4 Rental Rates ($/SF/Yr. Full Service) Class A Class B 4, Construction Deliveries Spec/BTS Owner-occupied $36 3, $32 $28 $24 In Thousands of SF 2, 1, $2 PAGE 4
SUBMARKET STATISTICS AT A SAN DIEGO Office Market Q4 Submarket Total Inventory SF TOTAL SPACE AVAILABLE DIRECT VACANCY RATES DIRECT NET ABSORPTION OVERALL RENTAL RATES Direct Available Sublease Available Direct Vacancy Y-O-Y Change Current Qtr. Trailing 12- Months Avg Rents PSF/Yr Avg Rents PSF/Mo. Downtown 1,69,436 2,16,765 172,386 17.2% 1.6% 4,594 89,584 $3.33 $2.53 1.25% Class A 6,493,416 848,588 9,886 8.5% -1.8% 4,427 43,48 $33.54 $2.8 11.99% Class B 4,197,2 1,312,177 81,5 3.8% 7.5% 167 (313,824) $26.85 $2.24 8.18% Central San Diego 13,856,472 2,64,587 85,527 12.%.3% 21,12 (41,562) $28.51 $2.38 5.51% Class A 4,262,772 546,4 42,965 1.7% 1.7% (72,151) $34.18 $2.85.6% Class B 9,593,7 1,518,547 42,562 12.6% -.3% 21,12 3,589 $26.65 $2.22 1.63% North San Diego 18,917,43 3,94,727 646,184 13.7% 1.1% 112,57 112,573 $35.99 $3. 4.5% Class A 9,34,167 1,353,131 315,692 11.2% 2.8% 27,896 22,877 $44.42 $3.7 -.13% Class B 9,883,236 1,741,596 33,492 15.9% -.5% 84,674 89,696 $3.28 $2.52 6.58% I-15 Corridor 8,247,255 983,856 349,427 9.7% -4.3% 18,13 282,246 $28.39 $2.37 4.34% Class A 3,895,278 372,454 292,692 5.% -4.1% 13, 89,24 $33.63 $2.8 8.83% Class B 4,351,977 611,42 56,735 13.9% -4.5% 5,13 193,222 $26.68 $2.22 1.6% SR-78 Corridor 2,216,555 35,643 2,183 14.7% -4.3% 119,616 $26.29 $2.19 5.79% Class A 584,786 121,426 2.8% -4.1% 46,712 $32.9 $2.67 1.55% Class B 1,631,769 229,217 2,183 12.5% -4.5% 72,94 $22.51 $1.88 3.26% I-5 Corridor 11,92,597 1,773,96 25,628 13.2% -.8% 118,299 114,36 $35.15 $2.93 2.39% Class A 5,344,518 969,991 14,674 15.6% -3.8% 9,769 47,39 $38.83 $3.24.96% Class B 5,748,79 83,969 19,954 11.%.% 18,53 67,267 $32.25 $2.69 3.66% South Bay 2,18,93 317,379 5,12 19.6% -.8% 16,739 $23.82 $1.99.17% Class A 447,583 145,11 5,12 3.6% -3.8% 17,9 $27.3 $2.28-6.89% Class B 1,66,51 172,278 16.6%.% (27) $21.82 $1.82-3.2% East County 1,42,821 72,432 7.4% 2.9% (4,893) $26.84 $2.24.% Class A 233,83 21,58 8.2% -.4% 894 $29.55 $2.46 6.1% Class B 1,168,991 51,374 7.3% 3.6% (41,787) $26.57 $2.21 -.37% Y-O-Y % Change San Diego Totals Total Inventory SF TOTAL SPACE AVAILABLE DIRECT VACANCY RATES DIRECT NET ABSORPTION OVERALL RENTAL RATES Direct Sublease Direct Y-O-Y Trailing 12- Avg Rents Avg Rents Y-O-Y % Available Available Vacancy Change Current Qtr. Months PSF/Yr PSF/Mo. Change Class A 3,296,35 4,377,789 887,921 11.%.9% 55,92 554,812 $37.69 $3.14 2.45% Class B 38,235,282 6,44,56 623,426 15.4% -.1% 219,63 97,797 $28.17 $2.35 6.6% Overall 68,531,632 1,818,349 1,511,347 13.4%.2% 274,695 652,69 $31.74 $2.65 5.% METHODOLOGY TOTAL INVENTORY: The total inventory includes all single and multi-tenant leased office buildings with at least 25, square feet of gross rentable square footage. TOTAL SPACE AVAILABLE: Available space currently being marketed which is either physically vacant or occupied. DIRECT SPACE: Space that is being offered for lease directly from the landlord or owner of a building. Under construction space is not included in space available figures. SUBLEASE SPACE: Space that has been leased by a tenant and is being offered for lease back to the market by the tenant with the lease obligation. DIRECT OCCUPANCY RATE: Direct space physically occupied divided by the total rentable inventory. DIRECT NET ABSORPTION: The net change in occupied direct space over a given period of time. UNDER CONSTRUCTION: Office buildings which have commenced construction as evidenced by site excavation or foundation work. DIRECT ASKING RENTS: The quoted full-service asking rent for available space expressed in dollars per sq. ft. 5 PAGE
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