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Real estate leaders converge to discuss state of regional market

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San Diego real estate industry leaders met at The Daily Transcript Thursday for a roundtable discussion on the state of the commercial property market and their forecasts for 2007.

The group focused their talks on how the county's purported housing slowdown affected commercial real estate, how the downtown market will fare in the near future and what the driving forces are affecting the market's change.

The group didn't come to any consensus about what would happen to the commercial real estate market in 2007. Instead, leaders presented different forecasts and reasoning behind their predictions.

Jim Spain, managing director of Colliers International, said commercial real estate values had flattened out recently, but development had not yet hit a downturn.

"We're not seeing the tremendous acceleration we saw over the last say four or five years," he said.

Steve Rowland of Grubb & Ellis|BRE agreed that values have held steady this year. He said one of the major issues coming forward in both the downtown markets and throughout the county would be volume of product.

"We're seeing less bids for commercial product, and yet the prices are still going up," he said. "There's still the capital that wants to be in San Diego. It's still one of the top two investment markets."

Irving and Hughes Senior Vice President David Marino had different forecasts for 2007, however. He and Spain engaged in a minor spat about what the effect of the county's vacancy rates would be on the market.

Marino contended that 2007 would be a slow year because, although brokers often speak in terms of low vacancy rates, oftentimes they fail to report how much property its tenants are subletting. This, he said, paints a more realistic picture of commercial property availability, especially in areas with high subleasing rates such as Sorrento Mesa, Carlsbad and the Interstate 15 corridor.

"If you look at the whole story, I think 2007 is going to be a very, very tough year for landlords," Marino said.

Spain argued that sublet rates across the county are still low, and are not affecting the market as much as Marino said.

"I totally disagree with Dave on sublease rates," he said. "I have our stats here from the second quarter, and we're showing less than 1 percent of sublease vacancy, basically in both industrial and office, looking across the whole county.

"Dave's coming out full doom and gloom. I think this is paradise compared to 1994."

There was universal agreement that the downtown commercial market faces challenges in the coming years. A number of issues affect the downtown market including accessibility and cost.

Parking is increasingly a concern as downtown condos spring up on top of what used to be parking lots. And CEO's, many of whom live north of the Interstate 805, Interstate 5 merger, tend to position their companies close to home in areas such as Del Mar Heights. The experts didn't seem to think that the low-price availability of downtown condos, spurred by the cooling housing market, would necessarily bolster commercial real estate. They didn't see San Diegans as being prepared to ditch their cars and walk to work.

Also in attendance at the meeting were Mark Riedy, the executive director of the Burnham-Moores Center for Real Estate at the University of San Diego; American National Investments CEO Gina Champion-Cain; Jerry Jacquet of Meissner Jacquet Investment Management Services; and Burnham Real Estate CEO Stath Karras.

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