Banking Fallout Hurting Office Occupancy

While San Diego is not a financial mecca like Manhattan, San Francisco or even Chicago, 24 percent of its office space is occupied by financial services, insurance and real estate firms.

Numerous commercial brokers estimate that turbulence in the financial market that resulted in the $700 billion government rescue plan will result in rising vacancy rates in office properties across the county.

“I expect vacancy rates to increase next year as a result of the spillover effects from the financial services industry,” said Delores Conway, an economist and professor with the University of Southern California’s Lusk Center for Real Estate. “But they aren’t going to be as high as they were during the 1990s recession.”

Conway estimates that the meltdown will hit San Diego in the next three to six months and last through the middle of 2009.

Chuck Currey, senior vice president with Sperry Van Ness, says slow job growth has resulted in increased vacancy rates locally.

“I don’t think we will really know what the final fallout of the financial crisis will be until as late as this time next year,” he said. “We can see ourselves in a trough easily through next summer and potentially through next fall as we figure out where things are going.”

Currey says the local office market is unique because most tenants occupy smaller spaces.

“Fifty percent of tenants are in less than 2,500 square feet. If you compare that to Chicago or New York, where the average is probably three to four times that size, we are small,” he said.

Bill Ballard, a broker with San Diego-based Grubb