The commercial real estate market continues to build upon strong fundamentals and improving market conditions. Below is a recap of commercial real estate sales activity in San Diego last year (note that the following does not include bulk portfolio or multi-property sales).

According to CoStar, 972 properties were sold in 2014 totaling almost 11.5 million square feet and $1.7 billion in sales volume. The retail sector had the most transactions of the three property types, but both the office sector and industrial sector each had more than 1 million square feet sell. The industrial sector reported a relatively low price per square foot compared to office and retail properties, but with the average industrial capitalization rate in line with the other property types it appears that investors still are willing to pay a competitive price for all commercial property.

All three sectors are showing strong fundamentals and improving market conditions, as evidenced by increasing rental rates, decreasing vacancy rates, an increase in the average price per square foot, and/or compressing capitalization rates.

As the San Diego commercial real estate market strengthens, so too does development. The following table shows information on properties under construction throughout the County.

According to CoStar, there are six office properties under construction, with almost all of them located near the coast. Notable projects include One La Jolla Center in UTC, a 305,952 square foot building with an asking rate of about $4.40 per square foot. Another notable project is the new Sempra Energy building located Downtown. When complete, the building will total 320,000 square feet.

CoStar does not report any industrial properties under development, however there are big plans for the Otay Mesa submarket that borders Tijuana, Mexico. With the completion of the San Ysidro Border Crossing remodel, demand for new industrial product is expected to increase in the near future.

Regarding the retail sector, there are currently 18 projects under development totaling 237,402 square feet. Notable projects include The Village at Pacific Highlands Ranch, a seven-building project with sizes ranging from 4,500 to 45,000 square feet. Phase I of this project is expected to open early this year.

2015 is projected to be another strong year for commercial real estate. Market conditions are expected to improve, which should increase demand for new construction.

Sources:

• CoStar
• IRR – San Diego