REAL ESTATE: Office market tightening, more construction on the horizon

North San Diego and Southwest Riverside counties need new office space again, signaling an end of an office-space glut, commercial brokers said.

Excess office space in the wake of the Great Recession left building owners straining to find tenants, and businesses scored great deals on top-flight, well-located office space. But those bargains have started to dry up, especially for tenants looking for 50,000 square feet or more.

The market for those tenants has gotten tight enough that landlords have begun building again after a quiet three years, and a few developers are scoping out speculative construction. Overall, the tightening office market hints at a strengthening economic recovery.

"In the last several years, there's been quite a few opportunities, now getting down to a handful, and will continue to dwindle," said Chris Hobson, a senior vice president with Cassidy Turley BRE Commercial in San Diego.

The Great Recession pushed many companies out of business and forced others to lay off workers, dramatically reducing the need for office space. In San Diego County, the vacancy rate peaked in summer 2009 at 18 percent, according to CB Richard Ellis. Riverside County peaked at 30 percent at the end of 2009, according to Coldwell Banker Commercial in Temecula.

Both rates have fallen steadily since their peak, but vacancy rates remain high overall. With landlords desperate to fill space, businesses in older, less-well-located buildings jumped at the opportunity to move.

During the economic boom years, "I did a Class B deal for $2.15 a square foot for 13,000 square feet," said Scot Ginsburg, a managing director with Jones Lang LaSalle in San Diego and a North County specialist. "I just did a Class A deal for similar size, $2.20 a square foot."

But in recent months the local economy has begun to rebound: the unemployment rate in San Diego County in January hit 9.6 percent, down from 10.5 percent 12 months earlier, and the rate in Riverside and San Bernardino counties fell to 12.4 percent, down from 14.2 percent in January 2011, according to the California Employment Development Department.

High tech and education have fueled much of the recent expansion in office space, said Richard Gonor, an executive vice president for Jones Lang LaSalle in San Diego. Companies want to be near telecom giant Qualcomm, making the Sorrento Valley an in-demand site for office space.

Bridgepoint Education, the for-profit online institution of higher education, is looking for more space, said Hobson, the company's broker. The company itself would not comment.

Go here to see the original:
REAL ESTATE: Office market tightening, more construction on the horizon