DROP IN A GROWING BUCKET
New Office and Lab Projects Sit Empty
IQHQ’s Research and Development District was completed in early 2025, putting the finishing touches on a sprawling 1.7 million-square-foot campus along the water downtown. At the end of the first quarter, no office or lab tenants had been announced. The Campus at Horton, also located downtown and spanning nearly 700,000 square feet, has been nearing completion for more than a year. But the foreclosure process has begun after a notice of default on $350 million in unpaid debt was issued this year. That could complicate its near-term completion.
The Smaller Office Leases Are the Big Deal
Smaller deals below 5,000 square feet have accounted for more than 50% of new leasing volume in the past year, and three-quarters of deals signed during the first quarter were for less than 10,000 square feet. While the national trend has seen the number of new leases — albeit smaller — accelerate in recent quarters, the reverse has been the case in San Diego. Momentum has largely stalled among the largest occupiers. No new leases above 50,000 square feet were signed during the first quarter, and brokers have noted that the added capital expenditures tied to relocation costs have been among the reasons. During the last cycle, between 2015 and 2019, almost 30% of leasing volume was concentrated in leases above 25,000 square feet, whereas in the past year it has been closer to 10%.
When Will The Office Market Recover?
Stakeholders have expressed concern that demand will remain below pre-pandemic trends through 2025, which will make it difficult for the region to avoid vacancy rising above 14% by 2026 to match the peak recorded during the Great Recession in 2010. It took seven years following that peak for vacancy to return to the pre-recession level. That might be why Irvine Company just sold another Class A High Rise, 401 B Street, for a mere $80/ft.
