San Diego County's suburban office, industrial, retail and apartment markets are each deemed to be in a strong recovery mode and may be better than that.
Integra Realty Resources' Viewpoint 2014 paper finds that for the most part, the county is more than holding its own throughout these various asset classes when compared with the rest of the country.
"The office sector (nationally) is exhibiting the most divergent performance … with several market areas still in the recessionary phase and others enjoying a period of expansion," the report states."This suggests a more localized office product demand, but supply might not be able to quickly react to changing market conditions."
While conditions in San Diego County's submarkets can vary widely, the report says office is in a strong recovery mode here -- at least in the suburban submarkets.
San Diego County posted a suburban Class A vacancy of 13.4 percent and a Class B vacancy of 20.7 percent at of the end of last year, according to Integra.
Integra said San Diego County averaged 1.47 million square feet of annual net office absorption in the suburban office markets from 2010 and 2013. This figure is projected to decline to 1.15 million square feet annually between 2014 and 2016.
The suburban market is strong enough for The Irvine Co. and Kilroy Realty (NYSE: KRC) to be considering the development of hundreds of thousands of square feet of speculative office space in the University Towne Centre and Del Mar Heights areas, respectively.
Still, build-to-suits (Qualcomm is a huge player in Sorrento Mesa) may make up the bulk of new construction in the county for years to come.
The vacancy story was quite a different one in downtown San Diego where an average of 20,000 square feet was returned to the market annually from 2010 and 2013, Integra said.
The downtown market is projected to absorb an average of 150,000 square feet of office space annually from 2014 to 2016, but with as much as 1.5 million square feet still available, that could take a decade to fill.
Metropolitan areas still in an expansion mode as far as office space is concerned include Houston, New York, Philadelphia and San Francisco, but the report that warns these markets could become oversupplied.
The survey included a troubled Detroit, which returned an average of 2.65 million square feet of office space each of the last three years. Office markets Baltimore; Dayton, Ohio; Jacksonville, Fla.; and St. Louis also remain mired in recession.
Although dangers exist nationally, the report said "the industrial sector is recovering even faster than previously anticipated, with the average estimated time to reach stabilized occupancy decreasing from four years to two."
Even Otay Mesa, which had more than 3 million square feet of industrial space in the depths of the recession, is recovering. Surveys differ, but it appears only about half that space remains available today.
San Diego's overall industrial market, like the suburban offices here, appeared to be in a strong recovery mode was headed toward expansion as 2013 drew a close, according to Integra.
San Diego County absorbed an average of 520,000 square feet of industrial property from 2010 to 2013 and is projected to see this increase to an annual 550,000 square feet from 2014 to 2016.
Integra pegged San Diego County's Class A industrial vacancy at 14.77 percent. The Class B space was faring significantly better at year's end at 8.62 percent.
Jackson, Miss. and Greensboro, N.C. are among those cities in which the industrial market are deemed to be in recession.
Integra seems to favor San Diego's geographically constrained industrial markets over the long-term, while saying that Houston, Kansas City, Mo. and Portland, Ore., are in danger of being overbuilt.
San Diego County's retail market, which took a big hit during the recession, is also in a strong recovery mode, according to Integra. With all those big-box stores vacated by such firms as Mervyn's, Circuit City and Linens 'N Things refilled or nearly so, most of what needs to be occupied are the in-line shop spaces.
The report, which also put retail in a late recovery mode and ready for expansion here, said this market averaged about 230,000 square feet in net retail absorption from 2010 to 2013. This figure is projected to drop to about 150,000 square feet annually from 2014 to 2016, not due to a lack of demand, but because very few new centers are being built.
Integra pegged San Diego County's average retail vacancy at 4.71 percent at the end of 2013.
Apartments are a favored asset class in this county in particular. San Diego, says Integra, is poised for expansion. Despite thousands of units in the works (there are 1,800 units in Garden Communities' Casa Mira View in Mira Mesa alone) Integra didn't seem too worried here, either.
It helps that the county's year-end vacancy rate was 4.56 percent for Class A apartments and 3.36 percent for Class B units. The Class A vacancy figure is notable in that many, if not most, of these luxury units have rents that exceed $1,500 a month.