Voit, for one, is reporting an increase in leasing and sales activity across all commercial property types, having completed more than 30 transactions encompassing upwards of 240,000 square-feet for the month of February alone.

The increased activity, however, is far from a roaring recovery. Cassidy Turley BRE Commercial notes in its report on the office market that although the outlook "is more optimistic as evidenced by a decrease in countywide direct vacancy rate and positive absorption reported during the fourth quarter," the office market "continues to lose tenants due to a weak employment market." However, the report also offers an upbeat note: "Between September and November, government, professional and business services combined have added 13,800 jobs countywide despite the financial sector losing 600 jobs in the same time period," the Cassidy Turley report points out. Those numbers provide "some signs of recovery for office tenants," it says.

A recent forecast from Grubb & Ellis Co. regarding the San Diego market expects to see more creative partnerships between landlords and tenants in 2010. The majority of tenants will favor short-term lease extensions despite landlords offering generous concessions to tenants who are willing to sign long-term leases. Some landlords, however, still prefer short-term leases in the hopes of being able to take advantage of increasing asking rates when the office market recovers, the report says.

"Communication between landlords and tenants, or borrowers and lenders, is more important than ever before," says the G&E report, noting that regular communication allows both sides to engage issues quickly, preferably long before significant problems arise on either side. "Landlords faced with the challenge of filling space and retaining existing tenants might consider incorporating more intense management and marketing strategies in an effort to stay competitive."

Cassidy Turley says that buyers this year will focus on quality assets and be prepared to hold them until market fundamentals improve. San Diego's long-term outlook remains positive for several reasons according to Cassidy Turley: the diverse economy, which is the 16th largest in the nation among the 366 US metropolitan areas, based on a 2008 GDP of $169.3 million; steady government and Department of Defense spending indirectly translates into additional employment growth in local manufacturing, construction, service, research and development, and technology companies; the presence of some of the best universities in the nation; strong health and biotechnology industries; a young and growing population (median age 35); and an excellent quality of life.

Based on the market reports from a variety of sources, the San Diego region seems headed in a positive direction. The pace of recovery, however, remains to be seen. As Cassidy Turley says in its report, "There is no doubt that the recovery in the office market will be slow as many companies, upon laying off employees, have excess space that must be filled before there is an increase in demand for new office space." Market reports from a variety of sources suggest that the same slow pace of recovery will be the case for other property sectors as well.

Instant Insights /

Confidence Rises in San Diego Market

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