The San Diego office market continues to strengthen as companies expand their footprints to house their growing workforces. During the past 12 months, office-using employment in the metro has outpaced overall hiring in the market and firms are backfilling underutilized space. Meanwhile, some companies are scouring the area for larger locations.
Tashakorian said, "The recovery of the downtown office market continues as smaller tech companies that are looking to be a part of a live-work-play environment are leasing available space."
The increased interest has caused vacancy to fall more than 200 basis points in the Downtown submarket in the past year; however, the rate still remains well above the metro average. Market-wide, rising tenant demand is encouraging builders to undertake the lengthy permitting process to begin new endeavors; more speculative projects are in the pipeline. One such building, is the 306,000-square-foot One La Jolla Center in University Towne Center that is slated for delivery in the third quarter. Large amounts of speculative space due for completion in 2015 will slow the decline of vacancy, which recorded a triple-digit basis-point improvement in the first quarter. Elevated space demand will foster strong rent gains in the metro again this year, boosting revenues for property owners.
Investment activity in the San Diego office market builds as improving operations and stiffening competition in other Southern California metros lure buyers to the county.
"Nonetheless, listings remain limited, which is driving up competition for available assets," Totah said.
A recent sale by Tashakorian and Totah, at 4375 Jutland Drive, is a great example of investor demand for high quality properties secured by a long-term tenant. The two-story, 31,530 square-foot office building was sold for $294 per square-foot. This sale represents one of the highest price per square foot deals sold in the Canyon/Morena submarket.
Tashakorian said, "Sales in the $1 million to $10 million range comprise the overwhelming majority of transactions, indicating a strong presence of high-net-worth individuals and small groups."
Buyers seeking security are pursuing listings with tenants locked into long-term leases. Many of these deals fall into the sale-leaseback category as companies sell off real estate assets in order to free up capital for further expansion. Opportunistic buyers are searching for Class B properties in submarkets with low vacancy that can easily be repositioned to attract new tenants. These properties trade in the high-5 to low-6 percent area.
First Vice President, Ben Tashakorian, alongside Investment Specialist, Nick Totah, leads the No. 1 office and industrial team within Marcus & Millichap's 72 office. In the trailing 12 months, our team, the Office and Industrial Advisors, has closed more than 38 transactions, which represents over 1,042,504 rentable square-feet and a combined transaction value of $145,305,630. The team is comprised of seven investment associates, each dedicated to a clearly defined market and meticulously study of their geographic area.
"We don't just market properties; we make a market for each property we represent," Totah said. Our long-standing culture and policies of information sharing to assure maximum exposure for each listings.
Marcus & Millichap closes 3.7 transactions every business hour. This is more than any other real estate investment brokerage firm in the nation. This dominant role gives us an edge in all aspects of the investment market, including analysis, underwriting, marketing, negotiating and financing, all designed to serve our clients and ensure maximum value. The San Diego office provides real estate investment clients with the opportunity to buy and sell all types of commercial property. The San Diego agents represent commercial real estate investors throughout the San Diego MSA, California and surrounding states. Investment professionals also leverage Marcus & Millichap's industry-leading research to offer investment real estate advisory services on individual properties and portfolios. Commercial real estate financing services are offered by a loan originator with Marcus & Millichap Capital Corporation (MMCC).
For more information, please contact Nick.Totah@Marcusmillichap.com.
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San Diego, CA 92121