The Oberlin, a creative-office project in Sorrento Mesa, recently sold for $20 million to a Crown Realty & Development JV. | Courtesy a representative of JLL

New SD Office Microdistricts Emerge

Carrie Rossenfeld Office

San Diego office tenants “are pushing into emerging microdistricts as space options dwindle and rents rise in areas such as La Jolla, Mission Valley, and Del Mar Heights,” according to a Q3 report by Savills Studley. The report adds that the demand is spilling over into Sorrento Mesa and nearby neighborhoods.

Steady leasing and a minimal amount of new construction have tightened conditions in the region’s office market, allowing few options for tenants seeking larger and mid-sized blocks, according to the report. Space in La Jolla, UTC, and Del Mar Heights/Carmel Valley remains in high demand and short supply, the source says, with lab and R&D space “even more challenging to find.”

Savills Studley also finds that the last two quarters have brought a steady flow of leases by tenants in the 30,000-square-foot to 50,000-square-foot range, according to the report. Leasing remained steady during Q3, with several larger leases exceeding 50,000 square feet being signed by tenants from a diverse set of industries including the financial and legal sectors as well as life science and biotech, the report says.

Meanwhile, the firm reports, interest in Downtown San Diego continues to build.

Smaller and mid-sized firms also remained active lessees, the report says. Quarterly deal volume totaled 1.5 million square feet, and tenants have leased 5.2 million square feet in the four most recent quarters.

Savills Studley also reports San Diego’s overall office availability rate spiked by 190 basis points to 18.2 percent during Q3. “The addition of some larger blocks of space boosted availability rates in the Central Suburban and Hwy 78 Corridor submarkets,” the report says.

Meanwhile, rent ticked up slightly, with overall asking rent rising by 0.5 percent to $32.69 ($2.72 per square foot) and the class-A average rent increasing by 1.6 percent to $37.37 ($3.11 per square foot), the report finds.

Office sales also increased during the quarter, and office property sales during the first seven months of the year totaled $1 billion, a 13.7 percent increase compared to the first seven months of 2017, according to the report.