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SAN DIEGO-With perhaps the highest effective rent growth forecast in the nation, the city’s office market has swiped the number two slot in Marcus & Millichap Real Estate Investment Brokerage Co.’s National Office Index for the second year in a row.

The index, which Marcus & Millichap’s researchers call a “snapshot analysis,” ranks 38 office markets nationwide based on a series of 12-month “forward-looking supply and demand indicators” including forecast employment and rent growth, vacancy, construction and absorption.

“San Diego’s economic diversity has allowed the office market to maintain its high-ranking performance,” says Kent Williams, vice president and regional manager of Marcus & Millichap’s local office. “Job growth and rising absorption have set the stage for marked improvement in San Diego’s office market for 2004, and office values will continue increasing over the short term.”

Marcus & Millichap’s findings show that 13,000 new office jobs are expected in the city in 2004, which, in turn, is projected to shrink vacancy by 160 basis points. In addition, construction is being significantly curtailed with only 550,000 sf of office space planned for delivery in 2004. All of these factors point to a dramatic increase in rental rates, with effective rents expected to jump to $22.25 per sf, which means a 2.3% increase and the highest rent growth forecast among the 38 markets surveyed.

Despite having such an impressive rent growth forecast, the city has been beaten out for the top spot in the index by Washington, DC, which has received a boon recently due to increased defense spending and an ever-expanding federal government.

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