San Diego Commercial Real Estate

The Economy: Recent economic data has been like the weather in Indianapolis: If you don’t like it, wait a couple of minutes and it’ll change. Conflicting data continues to point to a slowly expanding US economy. 7-years into this same slow motion movie and you have to ask, “What next?” Global Central Banksters have given us more than 600 interest-rate cuts and $12 trillion of asset purchases during the past 7- years. With the latest meetings of the ECB and the Fed, the answer is more of the same. Events
outside of our borders are now dictating the course of Fed policy despite the fact that within our borders the economy has demonstrated that removal of monetary accommodation is overdue. Today it was reported that bonds yields of Sanofi, the French pharmaceutical company, and Royal Dutch Shell have turned negative. This is nonsense.

Food for Thought: We’ve had five years of a bull market in the San Diego commercial real estate rental market. Now it may be over. 2016 has seen office space availability increase dramatically. Year to date, 570,000 square feet of office space has come on the market. This is in addition to the 360,000 square feet of space vacated by Qualcomm in 2015. This supply does not include new construction. Rather, it is due to slowing demand and additional space becoming available in existing buildings. In addition, many start-ups are beginning to struggle and their deaths will add more inventory to the market in 2016. The maturing demand for office space is expected to limit rent increases. While the tenants market of 2009 is still in the future, the landlord’s market we’ve seen for the past 3-years is over. The exception to this scenario is Downtown’s Class A buildings. That market is hot with limited availability. However, the offshoot is that rents in Class B and C buildings, some of which are functionally archaic, are under pressure.

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