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San Diego County’s negative office demand trend that began in Q4 2008 continued into Q1 2009. Although Q1 absorption was negative, it measured only one-third the amount of space returned to the market in Q4. Vacancy increased by 0.6%. If negative demand continues to slow into Q2, it is likely the “bottom” of the market will be reached by Q3 2009.
For the third straight quarter, significant amounts of office space were vacated in San Diego County. Net absorption totaled -247,665 square feet across all classes. However, most of the negative demand was in Class B (-125,772 SF) and Class C (-108,566 SF) space. In fact, Class A demand was relatively flat in Q1 with only 13,327 square feet of negative absorption. However, Class A vacancy increased significantly, attributed to the more than 420,000 square feet of new construction completed in Q1.
The countywide vacancy rate has slowly increased from a low of 8.9% in Q2 2006 to 17.8% in Q1 2009. While new construction over-supply has been the core cause of increased vacancy over the last three years, business closures and employment losses during the last three quarters have become the chief drivers. The 17.8% countywide total is comprised of 16.1% direct vacancy and 1.7% sublease vacancy.
New office construction (all Class A space) totaled 420,506 square feet in Q1. Under construction inventory currently stands at 953,334 square feet, nearly all of which is expected to be completed in 2009.
Contact Chris Reutz at 858.677.5385 for more information.
  San Diego Knowledge Report - Office - 2009Q1.pdf
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