Aside from salaries, a company's second largest expense is typically real estate. When a client is looking to lease, renew a lease, purchase or sell space, the role and knowledge held by a commercial broker such as Stephen Rosetta becomes extremely significant.
"Savings on space are bottom-line savings," said Rosetta, who is executive director of Cushman & Wakefield San Diego, a full-service commercial real estate company with a focus on brokerage and institutional sales.
"People put a lot of trust in me as a strategic adviser and I take that responsibility very seriously," said the Fallbrook native. Rosetta opened Cushman's San Diego office in 1996, bought the division from Cushman in 2002 and had the division repurchased by Cushman in April 2006.
Currently Rosetta and Cushman are mainly involved in the brokerage side of the industry, representing tenants in the downtown San Diego, Carlsbad, UTC and Interstate 15 markets.
"Our clients continue to grow, but they are looking for more flexibility," he said. Rosetta added that a majority of Cushman's local clients lease space rather than own, as it gives them the ability to grow as a company, reinvest in themselves and switch markets during a downturn.
Additionally, corporate tenants such as Illumina, Callaway Golf (NYSE: ELY), Ashworth (Nasdaq: ASHW) and Hewlett Packard (NYSE: HPQ) are looking to maximize their rental dollars by fitting as many employees as they can comfortably inside a building, which will maximize efficiency.
"If there's a 20 percent efficiency factor that's a real rent savings, if you can provide the parking," he said.
Achieving rent savings through space flexibility and efficiency is key for clients in markets such as San Diego, where rents have been appreciating spanning the past decade.
In the second quarter of this year, the average weighted Class A asking rate for San Diego County climbed to $3.21 per square foot per month, which represented an increase of 4.6 percent from the asking rate of $3.07 during the previous quarter, according to Cushman's second-quarter office overview.
According to Rosetta, higher rents typically occur in areas that are closer to the "decision makers" of a company such as Del Mar Heights and UTC, where there has recently been a migration of financial services and legal companies from downtown.
During the second quarter, the UTC submarket experienced the largest increase in rent, 9.5 percent. The primary reason for the jump relates to the single most significant occurrence in the market during that quarter, the $37.7 billion purchase of Equity Office by the Blackstone Group (NYSE: BX) and the subsequent re-sale of the San Diego assets to The Irvine Co., Rosetta said.
Now that Irvine owns 58.5 percent of the rentable Class A space in UTC and 56 percent of such space in Carlsbad, he forecasts that demand for space not owned by Irvine is likely to increase in the coming quarters.
Increased demand for industrial space is likely to continue, he said, as a significant portion of such space has been transformed into research and development or corporate headquarters space.
"As a result, industrial tenants are forced to do renewals and pay rates that are hard for them to handle," he said.
Lack of some types of space and appreciating rents and salaries are several reasons Rosetta cited as the cause of national companies downsizing their operations in San Diego within the past few years.
"However, there is a tremendous amount of intellectual capital in San Diego that is hard to replicate," he added.
This intellectual capital, combined with a strong job market and a significant amount of recently completed or ongoing commercial construction, indicates that demand for new commercial space exists.
New construction in the Del Mar Heights market has been absorbed quickly, as has some new space in downtown San Diego -- a region Rosetta views as a "soft" market. UTC currently has one new building going up.
But in the Carlsbad and I-15 corridor markets, the amount of newly completed construction has not been absorbed quickly, Rosetta said, which means vacancy rates are likely to increase in these regions.
"When (vacancy) rates increase rents will not continue to rise despite owners paying record prices for buildings," he said, adding the overall vacancy rate in San Diego, during the second quarter, was 10.1 percent.
In total 747,768 square feet of new construction was delivered to the market during the second quarter, with more than 3.5 million square feet of space under construction, of which only 25.7 percent was pre-leased.
Looking ahead to 2008, Rosetta predicts an overall flat market, with softening occurring in certain sectors.
"If we slip into a recession as a country, all bets are off," he said. "But in general, we're going to see flat rental rates and neutral absorption."