San Diego Office Rents Face Nominal Decrease

The second quarter is expected to bring clarity and insight into the depths of this recession, but it is also expected to be the depths of the recession. While forecasts are unanimous that the recession will be severe, many also agree that it will be short. The San Diego market, which has thriving technology and life science sectors that will help to buffer against the downturn, will certainly see a decrease in office activity—but only nominally.

“With an estimated forecast for this downturn to be sharp and painful and certainly more pronounced in our second quarter 2020 numbers, it is also expected to be short-lived,” Jolanta Campion, research director of San Diego at Cushman & Wakefield, tells GlobeSt.com. “We could see an overall decrease in rents, though we don’t foresee them to fall too much given San Diego’s solid fundamentals entering the downturn.

Rent declines and decreased office demand will vary between geographic markets in San Diego. Tech and life science hubs will see minimal impact. “Any declines may also be more related to location and quality. That said, an increase in concessions is expected to precede a decrease in rents,” says Campion. “Moreover, San Diego is entering this downturn on better footing then compared to the Great Recession in addition to currently having a much more disciplined supply pipeline.”

As the state begins to reopen, consumer demand will contribute significantly to the local economic improvement. “Whether market improvement is going to be fast or slow depends on a lot of factors, but local demand is likely to start resurging again at some point in the second half of 2020,” says Campion.

While new leases will likely decline this year, existing occupants are looking to renegotiate terms based on the changed market conditions. Landlords, on the other hand, are holding off until later this year. “Some occupiers consider shorter-term leases during a period of increased uncertainty and are requesting to investigate blend and extends or are asking to renegotiate terms,” says Campion. “Many occupiers and landlords are in a “wait-and-see” mode.”

Occupiers, on the other hand, are focused on shifting business operations to accommodate new needs. “Companies are distracted by the impact to current operations; focused on figuring out how to deal with remote workers, closed locations and disrupted supply chains,” says Campion. “Broadly speaking, tenants and office landlords are having positive conversations about how to manage the current situation.”