2023 North County Commercial Real Estate Outlook Recap

Over 70 real estate and business professionals gathered to hear about how national and international economic trends will affect the region at SDNEDC’s 2023 North County Commercial Real Estate Outlook on February 2.

Keynote speaker Gary London, Senior Principal of London Moeder Advisors, referenced the “soft landing” that many are hoping the federal government will be able to accomplish with inflation, avoiding a recession, and negative GDP growth. He likened the attempt as closer to “Tom Cruise trying to land an F-14 Tomcat on an aircraft carrier in the middle of the Pacific Ocean in a hurricane.”

BUT, he says, they may actually pull if off. Inflation has dropped to 2.2% which is still high average-wise, but it is steadily going in the right direction.

San Diego’s Diversified Economy

The economy in San Diego County has been boosted by an influx of companies relocating to the region, particularly in Oceanside, from Orange County, the Bay Area, and Silicon Valley. While businesses costs can be high in this region, they look like a discount to business from these regions, according to Tyler Stemley, Associate Vice President of Colliers.

“The San Diego region is blessed with a really strong, diversified economy,” said London. “Military spending provides stability for the region and other important sectors feed our region” like high technology and life sciences.

“San Diego is the number 3 life sciences hub in the nation. About 5.4 million square feet is being built in San Diego, and 3.3 million is in the life science world,” said Stemley. “But a lot of it is paused. There was a lot of exuberance in 2021-2022, but we’re seeing more of a return to normal in 2022-2023.”

A Changing Market

Historically, every market peak has been followed by a period of correction and then an even higher peak, so the event speakers expect an even higher peak in the near future. Nationally, sale volume is down to 17.4%, the second lowest number this century, according to Stemley. The last time sales volume was this low was 17.3% in 2008.

Pricing remains in flux, and sale velocity is down, according to Al Apuzzo, President of Lee and Associates. “A good rate of sales is between 4-6 per month for housing projects (in the region right now),” he said. Currently, there are only 20 projects in inland North County.

Many projects are on hold, taking a “wait and see approach” because they are no longer feasible due to interest rates, debt, and equity.

“Twenty percent of equity players are still on the market, so they’re only looking at the best projects. Equity still exists on the sidelines, so it will come back, but everyone is trying to “get lean,” said Apuzzo.

“Industrial market vacancies were at all-time lows (low 2 percent) in the end of 2022,” said Stemley. “With zero square feet of industrial space in North County right now, demand is robust, and supply is non-existent.”

San Diego Housing Deficiency

On the housing side, San Diego County is vastly undersupplied. “We are in a good place in San Diego County with our diversified economy, but we will be held back by our inability to provide housing,” said London. “We’ve run out of green field development projects available. This region has red-lined all the available remaining developable areas,” said London.

London’s approach to addressing the urban housing deficiency is to switch from building “horizontal to vertical at an exponential rate.” This is complicated by building height laws in some North County areas, but “we’re trying to cure the housing crisis in the urban areas. How many 200-300 unit housing projects need to be built to solve the deficiency of 10,000-20,000 units?” he asked.

Project opposition often comes in the form of environmental concerns, but London takes a different view. “It’s not an environmental sacrifice to build new housing on available land. We are making an environmental sacrifice by making people commute further (due to unavailability of housing),” said London.

In Conclusion

Everything considered, all three speakers at the event had held positive views for the real estate outlook in North County. Amid the challenges of high interest rates, high materials and labor costs, and waning consumer confidence, they believe San Diego’s diversified economy sets the region up well for stability and even a larger peak than we have recently seen.


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About the Author

Caitlyn Canby loves to discover and share people’s stories. She has her bachelor’s degree in Communications, Print Journalism with over 8 years of journalism experience. An Escondido native, she just moved back from Catalina Island to North County with her husband and two children to the town of Fallbrook. Caitlyn enjoys collaborating on projects as Marketing and Events Coordinator at SDNEDC, traveling, and exploring new restaurants, venues, experiences, and cultures.





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