Large-scale leases signal long-term confidence. Contrasting other Southern Califor-
nia markets, office vacancy in San Diego compressed by more than 100 basis points last
year. A bevy of 50,000-square-foot-plus commitments by life-science and tech firms was
largely to credit for the notable improvement in leasing velocity. Highlighting activity
in 2021, Apple inked six agreements for floorplans in UTC and Rancho Bernardo that
together totaled nearly 500,000 square feet. Additionally, medical device companies
Tandem Diabetes Care and Becton, Dickinson and Company agreed to occupy a com-
bined 400,000 square feet in Del Mar Heights. Expectations for office-using job creation
to outpace last year suggests other sizable commitments may await the metro in 2022. As
a result, submarkets outside of Downtown San Diego, where vacancy remains well above
20 percent, may see vacancy rates fall below their long-term averages as sparse deliveries
in these locales steer prospective tenants to existing properties.
Conversion and retenanting prospects support diverse buyer pool. Institutional and
private sales activity strengthened in San Diego last year, coinciding with the return of
positive absorption and greater pricing clarity. Sorrento Mesa and adjacent areas that
are hubs for life-science companies are attracting national investors seeking $20 mil-
lion-plus assets. These submarkets boast sizable inventories of high-end space; however,
larger Class B properties are accounting for the bulk of trades. Candidates for conversion
to lab or R&D space are coveted, as assets that have undergone similar repositioning are
swiftly securing high-profile biotech tenants. Private investors are active in the sub-$10
million space, targeting smaller Class C properties near Balboa Park and Interstate 8 that
have historically been occupied by professional services firms. Assets with upcoming
leasing expirations or notable vacancies are available at low-5 to mid-7 percent returns.
