Office Recovery Still Remains Cloudy in San Diego
By Joshua Ohl CoStar Analytics January 14, 2021 | 2:42 P.M.
The San Diego office market has experienced a deep retrenchment in leasing activity since the outbreak of the coronavirus, one that clouds any near-term certainty of a recovery.
Leasing activity from April 2020 to December, covering the three quarters when the pandemic took hold of the region, is down significantly across all submarkets when compared to similar stretches in 2018 and 2019. During the pandemic, office leasing volume in San Diego fell to the lowest level in 20 years.
Prior to 2020, San Diego had never recorded a single quarter with less than 1 million square feet of office space leased. Even during the height of the Great Recession,
quarterly leasing volume averaged more than 1.5 million square feet. The worst quarter for leasing volume during the last recession was 1.1 million square feet in the first quarter of 2009.
No area of San Diego was spared in 2020. The carnage extended from the suburbs to the central business district of downtown San Diego. In fact, quarterly leasing volume averaged less than 50,000 square feet downtown, with less than 150,000 square feet leased between the second and fourth quarters in total. For comparison, during the same period in 2018 and 2019, downtown San Diego averaged almost 800,000 square feet of space leased. The largest office lease signed there since last April was OneAmerica’s at 550 W. C St., for 9,000 square feet.
More suburban submarkets filled with traditional office users have recorded the strongest leasing volume between April and December. Both Mission Valley and Kearny Mesa led the primary office-using submarkets with the most amount of space leased during the prior three quarters. But each only recorded roughly 250,000 square feet of leased space in total, a far cry from what those areas averaged in 2018 and 2019 — 700,000 square feet and 550,000 square feet, respectively.
The retrenchment spread to San Diego’s primary tech nodes in University Town Center and Sorrento Mesa as well. Both areas averaged roughly 300,000 square feet of leasing in each of final three quarters of 2018 and 2019. However, in 2020, neither submarket recorded even 250,000 square feet total leased between April and December.
With most office employees still working remotely, office tenants continue to exercise caution as they evaluate space needs. It’s possible that office users could remain in work-from-home status or rotate employees through the office on a part-time basis, even following the wide distribution of a vaccine, allowing companies to shrink footprints in their next space. Those conditions will cloud a quick recovery in San Diego's office market.
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