Jan 17, 2024 - Development

Office vacancies plague San Diego as companies shrink footprints

Metro area office vacancy rate, Q4 2023
Data: Moody's Analytics; Chart: Axios Visuals

There's a growing number of vacant offices in San Diego.

State of play: As companies shrunk their footprints to account for more remote and hybrid work, 19% of office space in the San Diego metro area was vacant at the end of last year.

  • That's a 1% increase from a year before, which puts San Diego in line with the national average of 19.6%, as Axios' Emily Peck reported, citing new data from Moody's Analytics.

Why it matters: Office buildings are emptying around the U.S. as companies adapt to new norms from remote and hybrid work by shrinking their physical footprints.

What they're saying: "Even though 2023 was largely a year of companies and organizations calling people back into the office, we're not seeing that it's typically the standard five days a week back," said Nick Luettke, an associate economist at Moody's Analytics CRE.

  • When the market completes its transition as companies move to hybrid arrangements, the natural office vacancy rate will be higher than it was pre-pandemic, he said.

The intrigue: San Diego's vacant space is driving at least one new property owner to get creative.

  • J Street Space, a hotel developer, purchased the nearly vacant Tower 180 office complex last year for $61 million, and it's now spending $140 million to convert the empty offices into housing and hotel rooms, the Union-Tribune reported this month.
  • Just five years ago the previous owner renovated the property, which failed to lure new office tenants.

Zoom in: A few blocks away, the city of San Diego is still looking for a resolution with 101 Ash, the empty office tower it bought 18 months ago to settle legal disputes with its former landlord.

  • The city's 90-day window to negotiate a deal with the developer came and went, but the mayor's office said discussions remain ongoing and they could have news to announce this month.

The big picture: Two huge office projects could soon introduce lots of office space to downtown San Diego.

  • The Research and Development District covers 1.7 million square feet of labs, office and retail space. Although it was scheduled for completion by the end of last year, it hasn't opened, and a spokesperson did not respond to a request for a new estimated opening.
  • The Campus at Horton, a redevelopment of the Horton Plaza mall, promises another 1 million square feet, and is still under construction after once touting a 2022 completion date. It has not announced any office tenants.
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