Still more evidence of just how hot San Diego’s office market comes from an August report from the commercial brokerage firm Savills.
The firm found that office rents in San Diego County for the second quarter of 2019 were 9.7 percent higher year-over-year compared with 2018.
That’s the biggest jump in five years with overall office rents reaching $2.98 per square foot countywide, according to Savills.
Even more impressive is what’s happening in Carmel Valley with Kilroy Realty Corp’s One Paseo, which is still under construction.
“Asking rates are now approaching $6.15 per square foot,” said Michael Labelle, senior vice president in Savills’ San Diego County offices.
Aside from a few spots in Ranch Santa Fe, Labelle said he’s never seen office rates that high in a suburban San Diego submarket.
One Paseo ‘a Trend Setter’
“One Paseo is really kind of a trend setter, a different kind of animal,” Labelle said. “People want to be there. There’s a high concentration of wealth management firms that have either signed leases or are looking for space in that project along with law firms and pharmaceutical companies that want to attract and retain employees.”
Quarter over quarter, overall office rents in San Diego County were up 2 percent and rents for the most desirable Class A space were up 8.4 percent year-over-year to $3.34 per square foot.
In downtown San Diego — one of the region’s hottest markets — overall rents for all classes of office space averaged $3.29 per square foot.
The lowest rents in the second quarter were for space along the Highway 78 corridor, averaging $1.86 per square foot.
1.1M Square Feet Leased in Q2
Even with the increase in rents, Savills reported that demand was strong with 1.1 million square feet of office space leased in the second quarter.
That’s down a bit from the five-year average, but leasing activity has been on the rise for the past three quarters, the firm said.
“The pace of leasing activity has dropped over the last year, but is slowly reverting back to the five-year average and showing signs of strength,” Savills reported.
Leading leasing activity were companies whose business is technology, advertising, media and information — accounting for five of the 10 largest leases signed in the quarter.
Most of those transactions involved companies that were new to the market, relocating or expanding and North County accounted for about 76 percent of the transactions.
Among the biggest leasing transactions reported by Savills were 74,558 square feet of space leased by Omniome — a biotech firm — in Sorrento Valley, 70,140 square feet of space leased by Seismic a software company in Carmel Valley and a lease renewal of 35,000 square feet by Housecall Pro in Sorrento Valley.
The August report from Savills supports similar findings from other brokerage firms on region’s performance.
Cushman & Wakefield, for example, projected in its second quarter report that “continued economic and job growth in combination with increasing tenant demand should provide continued occupancy and rent growth throughout 2019 and into 2020.”