REAL ESTATE: Report sees rising office vacancies in 2009

By BRADLEY J. FIKES - Staff Writer | Wednesday, November 26, 2008 12:53 PM PST ∞

Lowered demand for office space will give tenants a better choice of properties, according to a 2009 regional forecast by Grubb & Ellis/BRE Commercial, a real estate broker. Among its findings:

-- San Diego County landlords will benefit from a steady demand from biotech tenants.

-- Southwest Riverside County region will have a glut of space from the dwindling amount of real estate-related tenants.

The decline in demand will encourage tenants to shop around for better deals, the report stated. Tenants will look for lower-priced submarkets, and to higher-quality office space that becomes available.

The report said life sciences and biotech companies will be a source of growth in both San Diego and Southwest Riverside counties. However, the trend is seen to be much stronger in San Diego County, with its large base of biotech companies.

"San Diego has established itself as a biotechnology hub with more than 500 life science companies occupying over 12 million square feet and the demand for biotech space is expected to remain steady from local biotech companies as well as global pharmaceutical tenants," the report stated.

Investors in life science-oriented real estate investments trusts are a lot more skeptical. Shares of these REITS have plummeted this fall. Analysts say investors anticipate increasing vacancies from cash-strapped biotech companies.

The Grub & Ellis/BRE Commercial report said the space glut will really take hold in the Temecula Valley area, which has had an especially heavy emphasis on real estate-related office tenants.

At the peak of the market, around 2006, 45 percent of Temecula Valley office tenants were escrow, real estate, mortgage and title companies, said Mark Esbensen, a Grubb & Ellis managing director who helped prepare the report. Much of that space is now being vacated.

The report urged landlords to be "aggressive" in lowering lease rates to get buildings fully occupied. And for those with money, it urged purchases of economically troubled office buildings at bargain prices, because they will bring in large profits once demand comes back.

While the city of Temecula is getting close to being built out, Southwest Riverside County still has a great deal of undeveloped land for construction once the economy recovers, Esbensen said.

French Valley, Menifee, San Jacinto, Hemet and Lake Elsinore have room for much more housing, which will require supporting businesses, Ebensen said.

And even now in Southwest County's slow real estate market, there's still opportunities.

"Commonwealth Land Title, through one of their divisions, is hiring people, and they're as busy as they can be," Ebensen said. "They're selling a lot of foreclosed houses. People are getting great deals, and it's at least taking a lot of that inventory off the books."

Contact staff writer Bradley J. Fikes at (760) 739-6641 or bfikes@nctimes.com.