Cassidy Turley Commercial Brokerage has released its San Diego 2014 Commercial Real Estate Forecast publication. This real estate market forecast discusses industrial, office, retail, apartment, hotel, and investment market trends for San Diego County. The report goes into detail about vacancy rates, absorption, and commercial rental rates. Because the report includes year end statistics, compiled from many sources, this publication is typically released in the Spring. Their Research Department always does an excellent job and this publication is constantly improving. Below is a synopsis from this report and a link to the complete report.
Commercial Real Estate Market Forecast Synopsis
Office: In 2014, the negotiating power between landlords and tenants in the Class A central core submarkets is expected to shift further supported by strengthening leasing fundamentals and moderate new construction. Countywide office vacancy is forecasted to decline 40 bps to 14.3% by the end of 2014 and Class A vacancy is expected to drop below the pre-recession level of 11.7%.
Industrial: The industrial market continued its growth in 2013 with its 10 consecutive quarters of positive net absorption. Until new speculative construction returns, the steady absorption of existing available inventory will continue to drive vacancy rates lower. The countywide direct vacancy rate is forecasted to decrease by 120 basis points to 5.9% by the end of 2014 and fall below the pre-recession level.
Retail: Continued pressure on asking rents and competitive concessions offered by landlords will support positive leasing activity in 2014 resulting in a moderate decrease in the countywide total vacancy rate from 4.5% in 2013 to 4.3% in 2014. The recovery is underway, albeit sluggish, and is much more evident in the prime coastal submarkets compared to the rest of the county. Retailers will continue to compete for the most visible locations, investors will continue upgrading existing properties, and new ground-up construction projects have begun.
Investment: The San Diego commercial real estate investment market transaction volume reached $5.1 billion in 2013, marking the 4 consecutive year-over-year gain in volume, a trend that is expected to continue in 2014. The Federal Reserve Committee’s reassurance of a highly accommodative stance of monetary policy, an increased availability of capital and easing lender standards will positively support the investment environment. Demand for top products in secondary markets including San Diego will remain strong, but will be met with a shortage of large scale offerings.
Multi-Family: Development activity has heated up, making the multi-family sector the first to fully recover and begin sustainable expansion. Fueled by pent up demand and historically low interest rate financing, investment activity in this sector is forecasted to remain fierce. With household formation and employment poised for moderate improvement, San Diego should expect to see vacancy dip to 2.5% and rental rates rise slightly by the end of 2014.
Overall, we expect 2014 to be a stable year for San Diego’s commercial real estate market. San Diego will increasingly be a relatively attractive market for investors to place their money in 2014. There will be attractive leasing opportunities for tenants/users that do not need to be in large Class A projects in the core markets.