By Joshua Ohl
CoStar Analytics | CoStar
October 17, 2024
Other new buildings land tenants
More than 400,000 square feet of office space opened during the third quarter, primarily a result of the RaDD project downtown. The mega life science campus still has more than 1 million square feet set to be completed in the coming quarters. That joins the Campus at Horton, which is pending completion downtown with 700,000 square feet of life science and office space. So far, no office or life science leases have been announced at the two projects. The speculative pipeline will largely empty when those developments are completed.
Even so, tenants chipped away at some of the region’s newest spaces during the third quarter. La Jolla Commons, the 213,000-square-foot tower in University Town Center that opened in mid-2023 and was almost completely available, leased a full floor during the third quarter. The West tower, which opened this year in downtown, added two more tenants totaling 26,000 square feet. That brings the building to 40% leased.
Demand has concentrated in new space in recent years, and the past 12 months have been no exception. Net absorption, which tracks the change in occupancy over time, has tallied 750,000 square feet in the past four quarters in buildings that have opened since 2020, while 125,000 square feet was absorbed in buildings developed during the 2010s. Every other vintage segment saw negative absorption during the past four quarters, with occupancy in buildings constructed in the 1980s falling by nearly 400,000 square feet.
Most of the new space in the suburbs has been leased, leaving occupiers few alternatives in those neighborhoods when seeking new space. Instead, urban and downtown areas offer occupiers nearly three million square feet of available space in buildings that have opened since 2021.
It is too soon to determine if suburban demand is weakening, but quarterly leasing volume dipped quarter-over-quarter to the lowest level since 2022 in San Diego’s suburbs. Urban leasing narrowly outpaced suburban leasing volume during the third quarter. That was the first time since the last quarter of 2023.
Even so, net absorption was positive in the suburbs during the third quarter. In fact, occupancy has increased by nearly 200,000 square feet in the suburbs in 2024.
Conversely, urban demand faltered again, with net absorption falling for the third straight quarter, piling up to nearly 300,000 square feet of occupancy losses in 2024. Downtown occupancy losses have totaled more than 200,000 square feet in 2024.
Slowing job growth, smaller requirements, and new spec supply point to San Diego’s vacancy continuing to rise. It is expected to approach 14%, which is close to the height of the Great Recession in 2010. It took seven years for vacancy to return to the pre-recession norm.
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