Office Landlords Getting an Edge in '15

It’s going to be a good year for San Diego’s office landlords, JLL managing director Jay Alexander tells us--maybe even good enough to spur spec development by next year.

Jay predicts that in ’15 there will be a continued, measured increase in rents and a reduction in vacancies across the board. Also, look for build-to-suit activity to become stronger as the lack of modern, large blocks of space limits choices for larger tenants. He even says that a year from now "spec construction won’t be a pipe dream.”

Tenants will continue to request high-quality tenant improvements that define their workplace strategy, and the high cost of these build-outs will make deals challenging, Jay adds. Tenants may not always get the turnkey TI they’re accustomed to, and pay out of pocket to get the space they want. Pictured: 3880 Murphy Canyon Rd in Kearny Mesa, part of the 128k SF Canyon Corporate Center, which ended 2014 with a flurry of leasing--seven new tenants taking 55k SF. JLL repped the landlords in the deals.

Saywitz Co president Barry Saywitz agrees the market is leaning more toward landlords. “The continued growth of the healthcare industries, aerospace, technology and R&D will push vacancy rates lower, which will cause concessions for tenants to diminish and rental rates to rise,” he tells us.

On the investment side, Barry says, with interest rates still low and volatility characterizing the equities markets, San Diego will continue to see strong demand for properties, especially as investors obtain financing more readily in the coming year. He says the continued influx of foreign capital and high local demand for quality properties will create increased demand and push prices higher in the coming year.