Office Market
The office market in San Diego continued to prosper in the fourth quarter. Vacancy decreased, lease rates increased to a record high, more than 2.5 million square feet of annual absorption were experienced, annual leasing activity increased and 1.2 million square feet of completed construction were delivered to the market. Approximately 1.8 million square feet were under construction at the end of the fourth quarter, down slightly from the 2 million square feet under construction in the third quarter.
Driven by 564,106 square feet of positive net absorption, the office vacancy rate for San Diego County decreased to 5.1% in the fourth quarter, a 6% drop. The vacancy rate has declined continuously over the past six quarters, from 8.7% in the third quarter of 1999 to its present low.
For the quarter, the average asking full-service-gross lease rate for office space in the San Diego County office market rose to $1.86 per square foot per month, the highest level in history. Average asking lease rates increased 9 cents (5%) from the third quarter. Office lease rates increased 24 cents (15%) from $1.62 in the fourth quarter of 1999.
Fueled by 8.3 million square feet of leasing activity in 2000 (up 30% from last year), more than 2.5 million square feet of net space was absorbed. Led by Del Mar Heights, Sorrento Mesa and Mission Valley, the San Diego County market generated 564,106 square feet of positive net absorption in the fourth quarter of 2000, 33% more than in the fourth quarter of 1999.
Industrial Market
San Diego County’s industrial market experienced approximately 7.4 million square feet of positive net absorption during 2000, driven by 16.9 million square feet of total gross sales and leasing activity. For the fourth quarter, the average asking triple-net lease rate for industrial space was 80 cents per square foot per month, the highest rate in five years. At the end of the year, the San Diego County industrial market delivered approximately 2.9 million square feet to the market, with 3.8 million square feet under construction at the end of the quarter.
The industrial vacancy rate in San Diego County continued to decline, falling to 5.4% in the fourth quarter from 5.6% in the third quarter despite the new construction entering the market, clear evidence of continued strong demand for space.
For the quarter, the county-wide average asking triple-net lease rate for industrial space rose 4% from the third quarter rate of 77 cents. The average rate appreciated 13% from 71 cents in the fourth quarter of 1999. Average triple-net lease rates ranged from 44 cents in Central San Diego to $2.54 in University Towne Centre.
Responding to the increased demand for new industrial product, more than 3.8 million square feet of industrial space were under construction at the end of the fourth quarter. The fourth-quarter volume of construction was virtually unchanged from the third quarter despite 700,000 square feet delivered. Square footage under construction was up 55% from the same period last year, when 1.7 million square feet were under construction.
