Office Demand Jumps, Vacancy Rate Drops in San Diego
San Diego’s office market ended 2024 with its strongest demand in three years and a declining vacancy rate.
After nine consecutive quarters in the red, net absorption surged to 304K SF in the fourth quarter, the strongest results in San Diego since Q3 2021 as office-related hiring increased and a dearth of new supply helped the market regain its balance.
The overall office vacancy rate, which hit its highest level since 2012 in Q3 2024 at 14.2%, ticked down to 13.9% in the fourth quarter. Three of San Diego’s six submarkets saw vacancies compress in Q4, with the Downtown submarket leading the way, decreasing by 60 bps to 24.6%, CBRE reported.
For the first time since Q3 2021, office demand in San Diego was positive for all building classes in the fourth quarter, CBRE noted.
The positive results in Q4 2024 represented a stark turnaround for San Diego’s office market, which in the first nine months of last year cumulatively posted negative net absorption of more than 510K SF. The year-end total, still negative at minus 206K SF, was a big improvement over the negative net absorption of 1.47M SF in 2023.
Office leasing activity in San Diego increased to 1.4M SF in Q4, led by the 46M SF Central San Diego submarket, which posted 868K SF of leasing activity and 277K SF of positive net absorption.
For the second quarter in a row, no new office projects were under construction in San Diego County in Q4 2024. The only delivery in Q4 was a 171K SF building at 4150 Campus Point in the UTC neighborhood, a six-story build-to-suit project from Alexandria Real Estate Equities.
Investment sales picked up in San Diego in the fourth quarter, with eight transactions each valued at more than $10M.
The Irvine Company, the largest office landlord in San Diego, closed out the year by continuing to offload its downtown office assets, selling two Broadway towers in separate deals in the fourth quarter.
The Irvine Co. sold 101 W. Broadway, a 426K SF tower built in 1984, to Sacramento-based Saca Development in a cash deal for $43.9M in November. At the end of December, Irvine sold 225 Broadway, a 363K SF building that opened in 1974, to Santa Monica-based XYZ.rent for $48M in cash.
The total of $91.9M for the two acquisitions amounts to about 35% of the $265M Irvine Co. paid for the two Broadway buildings in 2005.
Both buyers will continue operating the properties as office buildings, expressing confidence in the long-term vitality of downtown San Diego, the San Diego Union-Tribune reported.
Irvine Co. listed the two Broadway buildings in October, a month after it sold the high-profile Symphony Towers in San Diego for a bargain basement price of $84 per SF.
Newport Beach-based Irvine said in a statement last year that the sale of the downtown office towers is part of a long-term strategic review. The statement indicated that Irvine Company will be a major player in a master-planned development in the University City neighborhood around UC San Diego, where a community plan envisions 30,000 additional residential units.