Tim Olson Tim Olson

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UTC, Eastgate and Del Mar Heights led office leasing activitylast year in San Diego. According to a new report fromJLL, the San Diego market had nearly 770,000square feet of net absorption in 2019 with demand concentrated inthose three submarkets. Of the nearly 726,000 square feet in newdevelopment, 90% is already preleased.

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"Those markets are in a central location for employees,"Tim Olson, market lead and managing director atJLL, tells GlobeSt.com. "A lot of our higher quality and newproduct is also in those market segments. If you look at theindustries where we have seen robust growth over the last year orlast two years, it has really been our tech and life sciencesectors. Those three markets tend to play off of one another as faras the flow of tenants. The life science growth has been primarilyin the UTC, Eastgate, Campus Point and Sorrento Mesa submarkets,and in Del Mar Heights, absorption has been in the class-Abuildings but also in the new spec construction that is beingdelivered."

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While tenants are landing in this northern market cluster, lifescience and tech expansion are driving overall office leasing inSan Diego. "It is definitely leading the market. The story hasreally been that the life science growth over the last two years isreally removing a lot of the office inventory from the market,"says Olson. "If you look at a market like Sorrento Mesa, over thelast two years, there has been more than 1.2 million square feet ofoffice product that has been taken out of the office inventory andbeing converted into life science product. That is having anindirect impact on the tightening office market dynamics."

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Class-A space has seen the most demand from these users, and asa result, there is a supply shortage of quality space in largefloor plates. "We are seeing a huge dwindling county wide inclass-A space. In those three submarkets alone, if you look over30,000 square feet, I think you have seven class-A options thatexist," says Olson. "In those three submarkets, you don't have asingle option over 100,000 square feet. Companies are going to havea difficult time growing in San Diego, but we have seen a bigincrease in demand from larger users moving into the market."

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The supply shortage isn't severe, but it is creating challengesfor tenants looking for spaces in larger blocks or looking toexpand. "It is having a direct impact really countywide," saysOlson. "It isn't widespread that tenants are having trouble findingspaces, but if you are looking for anything over 30,000 squarefeet, then you have less and less options, especially in thecentral markets."

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.