San Diego Looking Good Long Term

SAN DIEGO-The long-term outlook is good, but there is short-term risk in the San Diego market, according to the latest report from Jones Lang LaSalle’s regional office. Despite the short-term concern, San Diego is poised to fare better than its other California counterparts.

The city’s technology base, says Jones Lang LaSalle’s Q2 report, is considerably broader than most other metro areas. A strong presence exists in computer, semiconductor, Internet-related services, telecom and biotechnology. Job growth has slowed, but still unemployment remains at a record low and tourism is brisk.

The office market is boasting a 7.4% vacancy, riding 2.1% under the national average. The CBD’s class A office vacancy has been charted at 5.9% while the suburbs are carrying an 8.8% rate. Construction is particularly robust in the suburban markets and more so in the vicinity of the Interstate 5 and 805 corridor.

San Diego’s CBD construction is starting to roll after years of lack of interest on the part of developers due to low rents, according to Jones Lang LaSalle researchers. Class A in the CBD is bringing $27 per sf while suburban office space is going for $26 per sf. A typical office lease carries a five- to 10-year term.

The report says strong pre-leasing suggests absorption will dip from 2000′s record pace to levels of 1997-98 despite high levels of construction. Meanwhile, development land costs should trigger office rents to rise, with “inflationary to above inflationary annual increases forecast.”