"Free rent is back," said David Marino, executive vice-president with Irving Hughes, a San Diego broker that represents tenants, "Not like it was in the early 90s when people were getting a year's free rent, but we're seeing it trickling back into leases as a concession, which hasn't happened in seven or eight years."
Many of San Diego's tech-based companies suffered during the dot-com and telecommunications busts. This led to an increase in vacancies and subletting as many companies shed unneeded office space.
Overall though, the market for office rentals has done better than might be expected thanks to a slowdown in construction and a healthy downtown economy.
Fueled by economic diversity, the county's commercial real estate market has side-stepped the steep downturn that has hurt many communities including the Bay Area.
However, some areas will continue to feel a pinch due to a congregation of technology companies and over-construction. Many companies are choosing to sublet vacant office space at lower rates than current market value in order to shed excess office space. The economy is returning, but the real estate market is usually six months behind.
Meanwhile a recent transaction involving the purchase of eight local office buildings by a New York investment firm illustrates how San Diego's commercial real estate has landed on the radar screen of institutional investors searching for commercial buildings nationwide.
"Southern California emerged as one of the top two markets in the country along with Washington D.C.," said the senior managing director of C.B. Richard Ellis in San Diego. "The (favorite investments) have been apartments and industrial buildings. But depending on the fund, they also like office and retail."
San Diego's economic diversity, high barrier to new development, and the strong, steady tenant base has resulted in a surge of institutional interest.
Information courtesy of the San Diego Union Tribune, "Free Rent Back as Big Buildings Try to Fill Space," by Mike Freeman, May 25 2002 and "New York Firm Buys 8 San Diego Office Buildings," by Mike Freeman, June 18, 2002.
