SAN DIEGO-Cassidy Turley, a leading commercial real estate services provider in the U.S., has released its midyear office market report for San Diego, indicating 736,317 square feet of net absorption, a pace that puts the market on track to out-perform 2012's 1.2 million square foot total for its best annual performance since 2005. Of the year-to-date absorption total, 585,967 square feet of office space was absorbed in the second quarter alone.

“San Diego office leasing velocity is definitely heating up,” said Brett Ward, SVP with Cassidy Turley. “Second quarter net absorption is more than double the quarterly average of 220,000 square feet since the end of the recession. Vacancy is declining with improved demand and average asking rents are rising. Most of the year-to-date net absorption occurred in class A office space, due primarily to newly completed projects that were pre-leased as well as growing leasing momentum in central San Diego.”

Countywide office vacancy was 17.9% as of June 30, 2013, down from 18.3% the same time in 2012 and 370 basis points (bps) lower than the peak rate of 21.6% recorded at September 30, 2009.

The Cassidy Turley report shows that the majority of second quarter absorption occurred in Sorrento Mesa, University Town Center (UTC), Campus Point and Mission Valley. Significant transactions included the occupancy of a new 248,888-square-foot build-to-suit for the FBI in Sorrento Mesa; Celgene Inc.'s move into 192,832 square feet in Campus Point; Illumina's occupancy of a new 123,429-square-foot build-to-suit in UTC; and Liberty Mutual's occupancy of 52,252 square feet in Mission Valley.

The largest move-outs in the second quarter took place in Kearny Mesa, where Bridgepoint Education vacated 80,000 square feet; in Eastgate, where Celgene Inc. vacated 78,470 square feet as part of its relocation and expansion to Campus Point; and in Carlsbad where the California Department of Fish & Wildlife and Army Corps of Engineers vacated 50,000 square feet.

“While some San Diego County office submarkets are still sluggish, the majority are more stable than they have been in years,” said Frank Wright, senior managing director with Cassidy Turley. “Direct vacancy has decreased in 23 of the county's 32 office submarkets compared to the same time a year ago.”

Of the 736,317 square feet of year-to-date net absorption, 518,718 square feet was accounted for by Class A product, with Class B product recording 102,498 square feet and Class C product logging 115,101 square feet.

“Class A office net absorption has been positive for 14 of the last 15 quarters with 3.4 million square feet of positive activity countywide,” said Wright. “This has contributed to a dramatic decline in class A direct vacancy, from 19.4% as of June 30, 2009, to 12.2% today. Many of the central high demand markets have very little available class A space left, and this is fueling a sense of urgency among tenants who are ready and able to upgrade their office locations.”

Cassidy Turley is a leading commercial real estate services provider with more than 3,800 professionals in more than 60 offices nationwide. With headquarters in Washington, DC, the company represents a wide range of clients—from small businesses to Fortune 500 companies, from local non-profits to major institutions.