FLIGHT TO QUALITY. Engineering and design
consulting firm Atkins North America vacated
two class B buildings in Carlsbad and Kearny
Mesa in June to consolidate into a larger,
18,900-square-foot space at Prudential Real
Estate Investors’ Gateway at Torrey Hills, in the
Del Mar Heights submarket. The 94-month
lease was valued at $5.5 million.
Wh i l e s o m e o f S o u t h e r n California’s larger economies continue to lag, San Diego has
turned the corner toward growth. At least
that’s the consensus from local experts,
who say the worst is behind us and the market here has bottomed out.
According to Beacon Economics, San
Diego County has added approximately
San Diego continuing down the road to
recovery, driven by its highly skilled, high-value-added industry sectors. Total nonfarm employment should reach its pre-recession peak of 1. 3 million jobs by late
2013. Unemployment, already below 10%,
will continue to fall—to about 8% by 2013.
Jim Costello, principal and director of
investment strategy at CBRE Econometric
Advisors, tells Real Estate Forum that in
the next five years, job growth will come to
San Diego at about 2.3% per year, outpacing the US overall with its relatively paltry
1.5%. With single-family home construction expected to pick up, Costello also
anticipates more construction jobs coming
online. “San Diego’s rate of population
growth drives it,” he says, pinning it at
about 1.5% over the next five years compared to 0.9% for the rest of the country.
Even now, for example, Viejas Casino
tribal leaders and casino executives recently
unveiled plans to build a new 150-room
hotel adjacent to the existing casino in
Alpine, CA. The $36-million project is
expected to create more than 400 construction jobs in addition to long-term positions
post-build.
“A project like this takes on added sig-
nificance in a challenging economic envi-
ronment, where every new job means so
much to local families and the local econ-
omy,” says Scott Alevy, CEO of San Diego
East County Chamber of Commerce. He
sees “a positive impact on local businesses
that provide goods and services to Viejas
Casino, the retail center and now the hotel.
This is great news for our entire region.”
Beacon Economics and those involved
By Natalie Dolce
in the Viejas Casino aren’t the sole voices of
confidence about San Diego’s future. Jon
Boland, a vice president in the local office
of Voit Real Estate Services, says the region
is outperforming other areas in California
and the nation, driven by technology, professional and business services, finance and
healthcare.
“An increase in tech entrepreneurship
has helped to offset a cooler environment
for aerospace and other defense-related
procurements,” he says. Local start-ups
doubled and in Q1 patents were up almost
20% over the prior year, according to tech
industry group Connect, Boland explains.
He’s also waiting for a spike in interest
around life science investments, given the
start of a new Medical Devices Engineering
M. A. program at the University of California,
San Diego. “The program will continue to
add to the metro area’s pool of highly
skilled life science workers,” Boland says.
As the numbers show, job growth is the
driving factor in San Diego’s office market
recovery, and Moody’s Analytics affirms it.
The company’s employment forecast for
the San Diego-Carlsbad-San Marcos MSA,
released in late August, projects employment growing in all office-occupying sectors except government next year.
Local office fundamentals may not be as
strong as they were before the recession,
but they’re getting better, says Rick Reeder,
office leasing and sales specialist at Cassidy
Turley BRE Commercial. “Statistics we
became accustomed to before the reces-
sion—such as 11% to 13% countywide
vacancy and annual leasing activity ranging
from a half-million to two million square
feet—are unrealistic in this post-recession
environment,” says Reeder. “However, the
office market is making strides. Industries
such as education, health, professional and
business services, technology and biotech-
nology continue to help the economy.” The
foreseeable future will be all about gaining
leasing traction and strengthening market
fundamentals, continues Reeder, who
expects “more evident improvement across
all submarkets in 2013 and 2014.”
According to Voit’s Q3 market report,
San Diego’s office market posted 468,008
square feet of absorption—a sizable jump
over Q2’s negative 4,108 square feet. Direct
vacancy declined year over year from
15.62% to 14.67% at the end of Q3. “We’re
