Do Green Buildings Rent for More?


In our latest case study, IRR San Diego reviewed leasing information in an attempt to find if “green buildings” (specifically LEED-certified or Energy Star buildings) command a significantly greater rent than non-green buildings (buildings without these certifications). While it is difficult quantify the impact on value for these types of properties due to limited data, our research will focus on asking rents for these types of buildings.

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2015 Mid-Year Viewpoint

Hotel-Appraisal-858-259-4900Integra Realty Resources – San Diego, along with its 60+ offices nationwide, has again published mid-year updates to our annual Viewpoint publication – with both a National Overview and over 300 Local Market reports.

The San Diego commercial real estate market, as well as markets across the country, continues exhibiting improving market conditions for all major property types, including office, multifamily, retail, industrial, and lodging.

For a complete look at the data presented in IRR Mid-Year Viewpoint 2015, please click on the links below.

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San Diego Leasing Trends – Midyear Viewpoint Preview

Based on our research, market conditions are expected to improve across all property types in San Diego. The following charts detail current rental and vacancy rates for office, retail and industrial property types in San Diego in comparison with the rest of the region and the United States. Following these current snapshots is a 12-month forecast of the change in market rent, the amount of square feet absorbed, the amount of construction completed, and the estimated allowance for tenant improvements.

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Preview of IRR Mid-Year Viewpoint

trends_san_diego_mid_year_review_2015On July 15, Integra Realty Resources will be publishing their mid-year Viewpoint publication, a comprehensive analysis of over 60 markets across the United States and the Caribbean. Compiled by MAI-designated appraisers, this update highlights local trends, cap rates, rental information, and other important commercial real estate data.

The following excerpts highlight trends for the office, industrial, and retail markets in San Diego.

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San Diego Real Estate…in 2050

Eric-Schneider-AppraiserLast week, Eric Schneider, MAI, ASA, attended LEAD San Diego’s HOT TOPICS program on what the San Diego region will look like in 35 years. The program was lead by Clint Daniels of San Diego Association of Governments (SANDAG), who provided an overview of how San Diego is expected to change and where the growth is expected to occur. His PowerPoint presentation can be found here, but here are the big takeaways on what real estate will look like in 2050.

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San Diego Construction Costs: 2015 and Beyond

As construction in San Diego increases across all sectors, so too does the cost of construction. The following data from Marshall Valuation Service, provider of building cost valuation data, summarizes how the average building cost per square foot has changed over the past five years for three property types: Class A office (glass and steel construction), Class B distribution warehouse (concrete tilt-up construction), and Class C retail store (masonry construction).

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The Hottest Industrial Submarkets in San Diego County

Warehouse-Industrial-Appraisal-San-DiegoWith strong fundamentals expected to help the industrial market along, we review San Diego County submarkets to see which areas are most in demand. The following show which submarket has the highest rental rate, the lowest vacancy rate, and the most positive absorption numbers for all industrial property types, including warehouse and flex space.

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Key SoCal Market Comparisons

Hotel-Appraisal-858-259-4900Every New Year begs a time for reflection, to account for what has transpired and to plan for the future. Looking back on 2014, it is important to review the three major property types across four of Southern California’s prominent markets to note any market trends. Below are tables summarizing the average price per square foot of office, retail, and industrial properties across San Diego, Orange County, Los Angeles, and the Inland Empire – including Riverside and San Bernardino Counties.

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2015 Viewpoint – San Diego Market Update

Hotel-Appraisal-858-259-4900We are pleased to present copies of our recently released IRR Viewpoint 2015, Integra Realty Resources’ signature publication.  In this annual edition, we provide market value trends for investment-grade real estate across the San Diego market. Read More

2014 Central San Diego Real Estate Market Recap

As 2014 comes to an end, we look back on the year and highlight trends in the Central San Diego commercial real estate market across the three major property types: office, retail, and industrial. Read More

Carlsbad Flex Market Improves as of 3Q 2014

Carlsbad-Flex-Industrial-AppraiserAfter several years of soft market conditions, the Carlsbad industrial market is strengthening and slowly improving. Due to overbuilding, the Carlsbad market has been very soft for several years, however; vacancy has decreased for industrial and flex product over the past three years. Due to a lack of new construction and increasing demand, vacancy rates are anticipated to continue to decline in Carlsbad for both industrial and flex product.

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Medical Office Tenant Improvements Costs in San Diego

Medical-office-appraiser-san-diego-countyAs the leading commercial real estate appraisal firm in San Diego, IRR San Diego has provided valuation services for numerous medical office properties throughout San Diego County and surrounding areas. As valuation experts, we also have experience in appraising proposed medical offices, which involves analyzing the cost of medical office tenant improvements and determining how the tenant improvements (or TI’s) contribute to the overall property value.

Over time, we have amassed data regarding the cost per square foot of tenant improvements, which we offer today for our readers. Please see below for information on the cost to build out certain types of medical office space (sorted by date).

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San Diego Hospitality Summit Recap

san-diego-hotel-appraiserIRR San Diego attended Bisnow’s Hospitality Summit, where developers, investors, and even Padres management shared their views on the San Diego Hotel market. Here is a recap of the event.


The San Diego tourism market is climbing quickly out of the recession, with occupancy rates above 78% according to Joe Terzi of the San Diego Tourism Authority. With such a strong recovery and a forecast of ever-improving market conditions, hotel owners are holding on to their investments, which is leading to a lack of inventory.  Like other property types where money is chasing few deals, it is a difficult time to buy hotels in San Diego (despite the low cost of capital), which is leading some to believe that San Diego hotels may reach the $1 million per room threshold.

Another trend for hotel properties is to buy in Downtown San Diego, one of the hotter submarkets in the area (which is a similar trend for apartment developers and investors that spoke at the last Bisnow summit). While the panelists agree that it is difficult to build downtown (see below for challenges), this consequently creates no oversupply, but rather opportunities for infill projects. Read More

San Diego Medical Office Update


After a year of stabilizing market conditions for medical office space in the San Diego market, market indicators are showing some negative signs. Does this downward trend signify a larger market movement?

The table below summarizes vacancy rates and rental rate data from CoStar Group compiled by Integra Realty Resources – San Diego.


Currently, the San Diego Office vacancy rate is approximately 10.0%, slightly up from last quarter. The increase is not significant but worth noting since vacancy rates of other property types have yet to increase this year.

What is also interesting to note is the average asking rental rate of medical office space in the San Diego market. Based on data from CoStar Group, rental rates hit the bottom of the market in Q4 2013 (which is considerably later than other property types) with an average rate of $27.94 per square foot per year. After climbing about 2% in the first half of the year (reaching $28.55 per square foot per year), rental rates saw a slight decrease (less than 1%) in Q3 2014.

Completions and Net Absorption

In addition to the change in the San Diego Office vacancy rate, overall completions and net absorption figures were reviewed. The following data is from CoStar Group, compiled by Integra Realty Resources – San Diego.


So far this year, no medical office completions have occurred, and the past three years do not indicate any noticeable trends. Absorption was fairly consistent over the past years with positive absorption in the 200,000+ range. However, in 2014 there is negative absorption of 31,470 square feet.


Based on market data, medical office market conditions have not improved as significantly as with other property types, as evidenced by increasing vacancy rates, decreasing rental rates, a lack of newly completed office product, and negative absorption.

That said, the shifts in these market indicators are nominal and could change significantly towards the end of the year. Additionally, niche markets such as biotech space continue to thrive in San Diego County.  Also, desirable submarkets such as UTC and Sorrento Valley continue to be in high demand. Although the medical office market is not as strong as other property types, it is forecasted that market conditions will continue to stabilize.

San Diego Economic and Financial Update Recap

858.259.4900-San-Diego-Commercial-Appraiser-Economic-UpdateOn Thursday, Eric Schneider, MAI attended the Burnham-Moores Economic and Financial Update Conference, an event held by USD each summer where presenters discuss current and future economic conditions, both nationally and in San Diego. The speakers included Mark Fleming, PhD, chief economist of CoreLogic and Alan Gin, PhD, associate professor of economics, University of San Diego. Presented below are some highlights of the meeting.

The Housing Market – Returning to “normal”

Mark Fleming presented on the continuing recovery of the housing market, and based on his research the housing market is not as bad as one would think. Though existing home sales are down, sale prices are continuing to increase because of the fact that there are less distressed properties being sold. Additionally, Mr. Fleming stated that houses are still relatively affordable compared to historical data, and issues such as student debt are not necessarily a factor as the debt burden for education has remained unchanged due better repayment terms.

That said, Mr. Fleming forecasted that there will less home sale activity in the future, one of the reasons being the expected increase in interest rates. Homeowners who financed purchases with a low interest rate are predicted to stay in their homes longer because there is no incentive to move and buy another property at a higher interest rate. This increase in rates will also lead to a decline in refinancing.

The National Economy – Forecasted to growth, but weakly

Alan Gin stated that while the GDP growth rate has been positive for the last 4 years, it has been relatively sluggish. Historically the average growth rate was 3.5% (prior to the great recession), but the current growth rate has averaged around 2%. The main reason for this lack of growth is that there is less consumption compared to years past.

The decline in consumption is primarily due to a lack of employment. Although the U.S. has experienced positive employment growth over the last 52 months (of the 8.8 million jobs lost in the recession, 9.1 million jobs have been created), the real unemployment rate remains an issue. The U-3 employment rate (which includes those seeking full-time employment) is around 6.1%, but the U-6 employment rate (which includes marginally attached workers, discouraged workers, and those working part-time for economic reasons) is closer to 12.1%. During the recession, businesses streamlined their operations to become more productive with their smaller existing workforce. Additionally, they are increasingly using temporary and part-time workers as they become more efficient. In turn, businesses are becoming more profitable, but they are slow to hire.

The San Diego Economy – Looking positive, but still facing challenges

Overall, Mr. Gin stated that the local economy is “great” with about 30,000 jobs being added each year. The top four job growth sectors include professional/technical services (lawyers, research and development, etc.), leisure/hospitality (tourism), construction, and health care. These are important sectors as these types of jobs are typically high-paying.

Despite improving economic conditions, there are some of the challenges that San Diego faces. The first is that there is a high cost to do business in San Diego. Aside from government regulations and taxes, high property costs equate to having higher wages in order to attract workers. In addition, there is competition from other states to have San Diego companies relocate. Specifically, states such as Texas have paid millions of dollars through their Enterprise Fund to have San Diego companies like Websense move. A third challenge is that there is a lack of single family development in San Diego. As we learned from Bisnow’s Multifamily Summit, there is an increase in multifamily development and a focus on urban, mixed-use projects. According to Mr. Gin, the issue is that there are typically fewer jobs created for multifamily development than single family development; it takes fewer workers to develop a 10-unit apartment project than 10 houses.


The economy, both nationally and locally, is continuing to improve. However, there are several factors that prevent growth similar to previous years. While both presenters forecasted positive economic conditions, the projected gains will not be dramatically significant. This is similar to the commercial real estate data reported in our mid-year market updates; growth is expected for the five main property types, but no significant increases in value are projected in the near future.

2014 Mid-Year Update

san diego commercial real estate appraiserIntegra Realty Resources – San Diego, along with its 60+ offices nationwide, has just published mid-year updates to our annual Viewpoint publication – with both a National Overview and over 300 Local Market reports.

In these analyses you will see details about how the San Diego commercial real estate market, as well as markets across the country, is continuing to recover.

Decreasing vacancy rates, moderate/high new construction growth, high absorption rates, and medium/high rental rate growth are all trends revealed in this mid-year compendium of reports.  We’ve also detailed trends across five key property types: office, multifamily, retail, industrial, and lodging.

For a complete look at the data presented in IRR Mid-Year Viewpoint 2014, please click on the links below.

2014 Mid-Year Viewpoint San Diego Office

2014 Mid-Year Viewpoint San Diego Industrial

2014 Mid-Year Viewpoint San Diego Retail

2014 Mid-Year Viewpoint San Diego Multifamily

2014 Mid-Year Viewpoint San Diego Hospitality

Information regarding other markets can be found by clicking here. The national mid-year update can be found by clicking here.

We hope that this market update is valuable to your commercial real estate decisions. As always, if you have any questions regarding our research, our forecasts, or commercial real estate valuations, please contact us directly.


San Diego Multifamily Summit Recap – Part 2

San Diego Apartment AppraisalIn our last post, we highlighted discussions from Bisnow’s Multifamily Summit, specifically apartment lending trends, concerns, and predictions.  In part 2 of our recap, we summarize comments made by the apartment development panel.

San Diego Apartment Development Trends

San Diego multifamily development continues to be focused on urban projects. The most active areas of development include urban infill, mixed-use development, transit-oriented development, and development focused on a 24/7 lifestyle. The current trend is a live/work/play environment, so submarkets such as downtown will continue to have opportunity.

Another continuing trend is developing more energy efficient apartment units, especially in light of new energy efficient regulations. For high end, Class A apartments, it is an expectation for a project to be green, so developers are trending toward energy efficient items such as green roofs, solar power, and car charging stations. That said, energy efficiency is not necessarily a huge impact for Class B and Class C apartments. For these types of properties, there is only a benefit if it positively impacts the bottom line.

A third trend is a desire from renters to live in projects with smaller units, but with more amenities. The reason for this is that smaller units make more economic sense, so developers are building more 1-bedroom units and including amenities such as storage. While San Diego may not be experiencing a rise in micro-apartments like San Francisco, the trend is moving toward smaller-sized units.

Future of Condominium Development vs. Apartment Development

For the short-term, the panel stated that there will not be much condominium development in San Diego. While there is some pent-up demand, the focus is on apartment development until condo development makes financial sense. Prior to the last great recession, the panelists agreed that there was a condominium conversion craze, due in part to the fact that financing was easily obtainable. Now, current lending conditions are considered to be “normal” in relation to almost 10 years ago. Despite a lack of condo conversions or development in San Diego, one of the panelists noted that their apartment projects  are either already mapped for condominiums or are being designed for a future condominium conversion.

Development Challenges in San Diego

Several development challenges were discussed during the presentation. The first challenge presented was inventory. The lots that are available to be developed are small; coupled with design requirements imposed by the City of San Diego, developers are required to build subterranean parking, which increases cost.  Another challenge is increased competition from developers due a lack of available projects to develop which is causing developers to move to secondary markets in order to build projects that are financially feasible.  A third challenge is the fact that a large majority of condominium development or conversions are subject to litigation. Litigation is such a concern that developers factor insurance costs into their cost models to covered being sued. Others completely stay away from conversions or, if they sell an apartment complex, add a restriction that prevents conversions.


The Summit’s development panel discussed a variety of topics centered around trends and challenges to build in San Diego. Overall, areas such as downtown San Diego continue to be the focus for future development. What is interesting to note is that there was little discussion on multifamily development in suburban San Diego. While there was discussion about developing more transit-oriented projects (such as along the proposed trolley line in Clairemont), most of the discussion leaned toward urban apartment projects. For the time being, the downtown is where the focus will be.

San Diego Multifamily Summit Recap – Part 1

Integra-Multifamily-Appraisal-San-DiegoOn July 16th, Eric Schneider, MAI and Joseph Rizzo attended the 2nd annual San Diego Multifamily Summit put on by Bisnow. Several San Diego apartment trends were discussed by two panels: a lending and a development panel. In this two-part recap, we summarize what each panel discussed beginning with the lender panel.

What trends are we seeing in the San Diego multifamily lending market?

One of the major changes that has occurred recently is that lenders are more active in providing financing compared to three to four years ago. There has been a resurgence in loans for construction, mezzanine financing,  private money, and full non-recourse loans. Additionally, borrowers that have been previously foreclosed on are no longer considered to be automatically rejected for a loan; instead, lenders are more interested in the reputation and character of the borrower. Lenders are also interested in the story, or why they were foreclosed on in the past. They are not concerned about over-building, but rather financing a sound project.

Another trend is that, based on the panel’s recent experience, there is more capital “chasing deals” than there are actual transactions. Whereas a few years ago it was difficult to finance a good deal, lenders are now in competition with each other, with lenders even competing over construction lending.

What are some current and future concerns with multifamily lending?

As far as concerns, one that was highlighted was that rents are currently outpacing economic growth, which means that it may come to a point where renters are not able to afford the apartments being built because wages have not increased. That being said, the panel’s consensus was that lenders are closely watching what is happening in the economy, and that the borrower should be concerned about deals making financial sense in the long run. For example, a deal may make sense if capitalization rates continue to be low, but what will happen when interest rates increase? Will the deal still make sense if apartment properties are not selling at a 4% or 5% cap rate?

Outlook and Summary

Each of the panelists were asked what is going to happen to interest rates in the next 12 and 36 months. All generally agreed that interest rates will increase, but they were uncertain as to how much. Compared to historical numbers, the interest rate has remained relatively low following an economic downturn, so they were unsure how interest rates would be impacted in short run and in the long run.

For now, the lending market continues to improve with more available financing options compared to a few years ago. While borrowers will benefit in the short run with lender competition, lenders are concerned with how long these types of deals will last, especially considering that interest rates are expected to increase in the near future. Though market conditions are positive, borrowers need to be considering both the short term and long term effects of their deals.