Rising Commercial Vacancy Rates in Downtown San Diego

Categories: Business NewsNewsReal Estate & Properties

An aerial perspective of downtown San Diego highlighting office vacancies amidst changing work preferences.

News Summary

Downtown San Diego is experiencing a worrying increase in commercial vacancy rates as more office spaces become available. This trend is largely attributed to the post-COVID shift in work preferences, with employees opting for roles closer to home. Despite retail foot traffic showing recovery, economic challenges like low consumer confidence are troubling for local businesses. Experts point out a national trend of rising office vacancies, with cities like San Francisco and Manhattan showing stark contrasts in recovery approaches. Kidder Mathews remains optimistic, suggesting innovative solutions to revitalize the area.

Downtown San Diego is facing a significant rise in commercial vacancy rates, as an increase in available office spaces becomes evident in the city center. According to recent reports by commercial real estate firm Kidder Mathews, the vacancy rates for office spaces downtown have reached troubling levels, as “Now leasing” and “Available” signs populate the landscape.

The challenges that continue to beset downtown San Diego are attributed largely to a post-COVID shift in work preferences. Many employees are now opting for jobs that allow them to work closer to their homes, citing convenience and safety as primary motivators. Workers increasingly seek amenities such as dining options and banking facilities within easy reach during their breaks, further influencing the demand for office spaces in urban centers.

While retail foot traffic in downtown San Diego is showing signs of recovery, it remains far from robust. Experts indicate that current economic conditions, including low consumer confidence and high credit card debt, contribute to the struggles faced by retailers in the area. The business atmosphere is challenged as residents remain cautious about spending, thereby impacting overall commercial performance.

Kidder Mathews has reported a continuous increase in office space vacancies measured by square footage in downtown San Diego. This trend reflects broader national patterns where the office vacancy rate hit 19.4% in May, marking an increase of 160 basis points compared to the previous year. A national assessment of potential commercial conversions shows that over 149 million square feet of office space is being proposed for conversion into residential units, a trend that has gained momentum since 2022.

In evaluating the feasibility of converting empty office spaces, experts note that the process is far from straightforward. Such conversions often require significant infrastructural adjustments, including the need for proper bathroom facilities in each residential unit. This complexity can impede quick transitions from commercial to residential use, leaving many offices vacant for extended periods.

Amid these challenges, downtown San Diego’s recovery appears to be lagging behind other West Coast urban areas that are actively focusing on revitalization initiatives. Notably, cities like Manhattan have developed programs to support property owners with zoning and permitting processes to facilitate these conversions, resulting in a considerable quantity of proposed conversion space—over 23 million square feet in Manhattan alone, with much of the office stock suitable for transformation into residential uses.

Conversely, San Francisco currently exhibits one of the highest vacancy rates at 28.4%, with office attendance averaging only 43%. The disparity in commercial real estate health among cities underscores the difficulties faced by urban centers in attracting businesses and maintaining occupancy levels in office spaces.

As the landscape of commercial real estate continues to evolve, a variety of Southern markets demonstrate differing trends in office vacancy rates and rental prices, which often either surpass or fall below the national average. Boston currently leads national office construction activity, whereas Midwestern and Southern markets show varying trends in terms of office occupancy and commercial supply.

Despite the challenges of rising vacancy rates and shifting economic conditions, Kidder Mathews maintains an optimistic outlook regarding San Diego’s potential for recovery in the commercial real estate sector. While hurdles remain, many stakeholders in the area are exploring innovative solutions to revitalize downtown San Diego and adapt to the new preferences of the workforce.