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Office/industrial building sales improving, but still below mid-2000's

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While owner/user office property sales activity in San Diego County has picked up this year, the number of transactions is still running 35 percent below the mid-2000s, according to Colliers International's Private Client Investment Report.

The Colliers report -- in conjunction with data from The CoStar Group (Nasdaq: CSGP) -- covers both office and industrial property transactions generally between $1 million and $10 million, for the nine months ending in September 2014.

While many office and industrial transactions are larger than $10 million, these are more likely to be made by REITs or large institutional investors.

The largest $10 million-or-lower transaction cited by Colliers in this report during the nine months was the $5.95 million sale of the 25,386-square-foot Oceanview Plaza medical office building, at 2420 Vista Way in Oceanside, to a unit of Trollman Properties of San Diego.

That sale last August also included an adjacent 41,818-square-foot vacant lot for future development.

Ingold Family Investments LLC, of Fallbrook, paid nearly $5 million to acquire a 33,715-square-foot flex building at 7740 Kenamar Court in the Miramar area in September.

Marc Posthumus, a Colliers vice president, said while the market continues to improve, it has not returned to pre-recession strength.

Colliers and The Co-Star Group tallied about 30 owner/user office and 50 industrial, under-$10 million owner/user transactions in the county through the third quarter.

In addition the report counted about 60 office investment sales and about 42 under-$10 million industrial investment sales through September.

The overall average per-square-foot acquisition cost for owner/user office properties was $195 as of Sept. 30. This is compared to a peak of $257-per-square-foot in 2007.

The average per-square-foot industrial owner/user sales price -- which stood at $162-per-square-foot in 2008, has been climbing -- but still was only able to muster a $110-per-square-foot average by this year's third quarter.

"Industrial investment price per-square-foot has increased but is still 33 percent below peak pricing in 2008," the report stated.

While office and industrial pricing may not be at pre-recession highs, investors in both properties may take heart that by most accounts, vacancies have continued to decline.

"Office demand is expected to continue to be steady and vacancy is projected to drop to nearly 12.5 percent by the end of 2014," Colliers wrote. "At the current pace, 2014 will post the most absorption of [office] of any of the past nine years."

San Diego County office demand in the third quarter of 2014 totaled a 293,656 square feet of net absorption, by Colliers' and CoStar's accounts.

"The absorption trend continues to be consistently positive with 17 of the prior 18 quarters pushing vacancy rates steadily downward," Colliers added.

The San Diego County combined industrial/R&D net absorption in the third quarter totaled a net 838,082 square feet, demonstrating the asset class continues to strengthen here.

The overall industrial vacancy rate decreased by 37 basis points in the third quarter, settling in at 7.5 percent. Colliers reported this is the eighth consecutive quarter where vacancy has fallen below 10 percent over nearly five years.

"The countywide vacancy rate for industrial/R&D continues to slide and is trending toward 7 percent by year-end. This would put vacancy down to a level that was last seen nearly eight years ago," Colliers continued.

Colliers added that while owner-user industrial acquisition activity was down in the third quarter, it has picked up.

Other factors are in commercial and industrial investors' favor, including interest rates near historical lows.

"They're not anticipated to increase again until mid-2015," Colliers wrote.

The report was compiled by Posthumus and Amy McNamara, who is also a Colliers broker.

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