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After two quarters of positive absorption, overall demand for office product in Q4 was negative. Most of this negative net absorption was concentrated in a few submarkets with only three exceeding a negative net absorption of 50,000 square feet. In general, demand was flat with the exception of a few Central San Diego submarkets which experienced increased demand. Q4 leasing and transaction volume was relatively low as well, indicating that any substantial decrease in the vacancy rate won’t be realized until after mid-year 2010.
Q4 net absorption measured a negative 118,211 square feet; most of this negative demand (-112,382 square feet) was in Class A space. Class B posted a negative 30,467 square feet. Class C gained 24,638 square feet, helping to mitigate some of the negative demand that it experienced the previous three quarters.
During 2009, overall demand was 406,344 square feet across all classes... a better year than both 2008 and 2007. Class A posted nearly one million square feet of net absorption while combined net absorption for Class B and C totaled nearly -500,000 square feet.
Over the past two-and-a-half years, countywide office vacancy has climbed steadily, reaching 17.8% at the end of 2009. During the course of 2009, the increase in vacancy amounted to only 64 basis points, primarily because construction activity wasn’t as intense as the over-supply situation from 2006 through 2008. Not only were annual construction completions (new supply) greater over the previous four years, but demand in 2009 was better than both 2007 and 2008.
New supply totaled 1.2 million square feet in 2009. No new construction was completed in Q4. The total amount of space under construction at year-end stood at only 356,887 square feet. All but 40,000 square feet is expected to be completed in 2010. The prevailing over-supply trend that began in 2001 has ceased.
Contact Chris Reutz at 858.677.5385 for more information.
  San Diego Knowledge Report - Office - 2009Q4.pdf
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