San Diego Office Owners Dropping Rents to Survive Downturn

SAN DIEGO, CA— San Diego office market fundamentals are softening as ongoing job cuts and reduced business profitability erode space demand, forcing owners to become more flexible with rents, according to a second-quarter Office Research Report by Marcus & Millichap, the nation’s largest real estate investment services firm.

Above-trend inventory expansion has come at a time when a greater number of local companies have downsized their footprint, causing metrowide vacancy to reach the highest rate in more than a decade.

“Sales activity in the San Diego office market has decelerated by 50 percent over the past year, as deal flow during the last six months has accounted for less than one-third of the year’s closings,” says Kent Williams, regional manager of the San Diego office of Marcus & Millichap.

Following are some of the most significant aspects of the San Diego Office Research Report:

· As the economic slump continues to weigh on corporate profitability, local employment is forecast to contract 2.6 percent in 2009, or by 34,000 workers, after 24,900 positions were eliminated last year. Office users are expected to cut 11,900 jobs, a decrease of 3.4 percent.

· Builders are scheduled to deliver 920,000 square feet of new office supply to the San Diego metro this year, expanding inventory by 1.5 percent. In 2008, more than 1.4 million square feet came online. Completions have averaged 1.3 million square feet annually during the past five years.

· By year end, vacancy is projected to increase 290 basis points to 18.1 percent, after the average rate rose 230 basis points last year.

· Asking rents are forecast to shrink 4.2 percent to $29.10 per square foot this year, while effective rents will slip 6.2 percent to $24.50 per square foot.

For a copy of the complete San Diego Office Research Report, as well as reports on other markets nationwide, visit our website at http://www.marcusmillichap.com/.

Press Contact: Stacey Corso, Communications Department, (925) 953-1716