Why Have Office Rents Stalled?

Jolanta Campion

Office leasing activity surged in the second quarter, with activity reaching record levels. In fact, 2Q18 was the second best quarter in the last five years, according to a report from Cushman & Wakefield, and vacancy rates fell to 12.4%. Despite the occupancy gains, rents failed follow. Quarter-over-quarter, rents remained flat at $3.02 per square foot, and class-A and class-B asking rents grew only a penny during the quarter.

“San Diego’s overall asking rate for office space across all classes remained unchanged from last quarter at $3.02 per square foot per month on a full service basis,” Jolanta Campion, director of research in San Diego at Cushman & Wakefield, tells GlobeSt.com. “Notably, the first quarter of 2018 had represented the first time the overall average rate had exceeded the $3.00 per square foot mark since we began tracking data for this market in 2003. The overall average is up $0.09 or 3% year-over-year from $2.93. Class-A and class-B asking rents each added a penny quarter-over-quarter to $3.43 per square foot and $2.81 per square foot, respectively.” For poorer quality spaces, rents actually declined quarter-over-quarter. Class-C rents fell by $0.05.