San Diego’s office market ended 2024 with its strongest demand in three years and a declining vacancy rate, a report from CBRE finds.
After nine consecutive quarters in the red, net absorption surged to 304K square feet in the fourth quarter, the strongest results in San Diego since Q3 2021 as office-related hiring increased and a dearth of new supply helped the market regain its balance.
The overall office vacancy rate, which hit its highest level since 2012 in Q3 2024 at 14.2%, ticked down to 13.9% in the fourth quarter. Three of San Diego’s six submarkets saw vacancies compress in Q4, with the Downtown submarket leading the way, decreasing by 60 bps to 24.6%, CBRE reported.
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For the first time since Q3 2021, office demand in San Diego was positive for all building classes in the fourth quarter, CBRE noted.
The positive results in Q4 2024 represented a stark turnaround for San Diego’s office market, which in the first nine months of last year cumulatively posted negative net absorption of more than 510K square feet. While the year-end total was still negative at minus 206K square feet, it was a big improvement over the negative net absorption of 1.47M square feet in 2023.
Office leasing activity in San Diego increased to 1.4M square feet in Q4, led by the 46M square feet Central San Diego submarket, which posted 868K square feetof leasing activity and 277K square feet of positive net absorption.
For the second quarter in a row, no new office projects were under construction in San Diego County in Q4 2024. The only delivery in Q4 was a 171K square feet building at 4150 Campus Point in the UTC neighborhood, a six-story build-to-suit project from Alexandria Real Estate Equities.
Investment sales picked up in San Diego in the fourth quarter, with eight transactions each valued at more than $10M.
The Irvine Company, the largest office landlord in the city, closed out the year by continuing to offload its downtown office assets, selling two Broadway towers in separate deals in the fourth quarter.
The Irvine Co. sold 101 W. Broadway, a 426K square foot tower built in 1984, to Sacramento-based Saca Development for $43.9M in November. At the end of December, Irvine sold 225 Broadway, a 363K square foot building that opened in 1974, to Santa Monica-based XYZ Rent for $48M.
The total of $91.9M for the two acquisitions amounts to about 35% of the $265M Irvine Company paid for the two Broadway buildings in 2005.
Both buyers will continue operating the properties as office buildings, expressing confidence in the long-term vitality of downtown San Diego, The San Diego Union-Tribune reported.
Irvine Company listed the two Broadway buildings in October, a month after it sold the high-profile Symphony Towers in San Diego for a bargain basement price of $84 per square foot.
Newport Beach-based Irvine said in a statement last year that the sale of the downtown office towers is part of a long-term strategic review. The statement indicated that Irvine Company will be a major player in a master-planned development in the University City neighborhood around UC San Diego, where a community plan envisions 30,000 additional residential units.
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