SAN DIEGO-As expected, the region’s suburban office and R&D markets are experiencing “melt-down conditions,” according to a top local real estate executive. Owners and tenants need to recognize the harsh reality that the situation is likely to get worse before it gets any better, according to David B. Marino, executive vice president of Irving Hughes, a locally based tenant-representative.

“The San Diego economy and commercial real estate rents peaked at the exact same time in the fourth quarter of 2000, and on a monthly basis since, the economy has been deteriorating,” he says. “This is 1991 on steroids, and the tragic events of the Sept. 11 attack on America, along with the potential long, lingering aftermath, are working as an accelerator to this downward economic trend.”

Since the beginning of the year, it’s been virtually impossible for local businesses other than some biotech companies to raise capital in the public, venture capital and private markets, Marino says. Throughout the year, many of San Diego’s tech companies–including wireless, software and telecom–have laid off up to half their work forces.

Not all parties in commercial real estate feel the new economic reality; at least not yet, Marino believes. Those presently feeling comfortable may find their situations changing in the next year.

There are a lot of owners out there who are sitting back comfortably with buildings at 95% occupancy or greater,” he says. “Given that the average commercial lease is three to four years, and a lot of five-year leases were signed in 1998 and 1999, the natural rollover of leases in 2002 and 2003 will be in the 30% range each year across a portfolio of properties.”

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