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Overall demand continued to be positive for a second straight quarter causing vacancy to
dip slightly to 17.5% -- a 0.3% decrease compared to Q2. Much like the previous quarter,
Q3 demand was driven primarily by the occupancy of a few large tenants. Demand has been
generally flat with the exception of a few submarkets that clearly showed signs of
increased demand.
Q3 posted 598,971 square feet of net absorption. A significant portion of this was due to
the completion and occupancy of Sony’s 450,000-square-foot office tower in Rancho
Bernardo. Countywide Class A net absorption totaled 668,943 square feet while Class B
remained relatively unchanged at only 2,140 square feet. Class C had negative demand with
-72,112 square feet of net absorption.
The countywide vacancy rate has slowly increased from a low of 8.9% in Q2 2006 to 17.9% in
Q2 2009. However in Q3, vacancy dropped to 17.5%, driven by significant demand and the
fact that all the new supply completed during the quarter was absorbed upon completion.
The 17.5% countywide total is comprised of 16.3% direct vacancy and 1.2% sublease vacancy.
Direct vacancy continued to increase while sublease vacancy continued to drop. Although
smaller tenants (under 5,000 square feet) have continued to be the mainstay of the Q3
vacancies, leasing activity has also increased for tenants in this size range.
New office construction totaled 450,000 square feet in Q3 bringing the year-to-date total
to 1.2 million square feet. Under construction inventory currently stands at only 292,427
square feet with 142,427 square feet of this expected to be completed by year-end.
Contact Chris Reutz at 858.677.5385 for more information.
  San Diego Knowledge Report - Office - 2009Q3.pdf
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