Office Vacancy Finally Returns to Pre-Recession Lows

The office vacancy rate in San Diego has returned to pre-recession lows. According to a new report from CBRE, office absorption in the second quarter surpassed 500,000 square feet and vacancy fell to 10.6%—the lowest rate since the last peak. If absorption follows this trend, the market will likely hit a single-digit vacancy rate by the end of the year. The strong leasing activity was driven largely by organic growth within the market from the defense, life science and financial services industries, which have long been the industry drivers in San Diego.

“Half of the leasing transactions that occurred in the second quarter were from growing tenants, so organic growth in the market,” Christopher Pascale, SVP of CBRE, tells GlobeSt.com. “We have companies here that are growing, and office growth drives office absorption. There is a direct correlation there. The unemployment rate in San Diego is below 3%, which is the lowest that it has been in 20 years. If you couple that with the lack of new construction, which means there has been no overbuilding in this recent upcycle, that results in positive net absorption and lower vacancy rates.”

Pascale says that a single-digit vacancy rate is within reach—and that would be the sign of a very healthy office market. San Diego already has the lowest office vacancy rate in Southern California. “We are almost into single-digit territory, which is a milestone for any office market,” he says. “If we keep up net absorption, I would predict that we will be sub 10% direct vacancy by yearend.”