Records Set in San Diego : Real Estate Boom Seen Continuing

Last year was one of the best ever for San Diego County real estate. And industry experts expect the trend to continue into 1987.

A record number of new homes and condominiums were sold; a large number of apartments were built and rented, and office and industrial buildings experienced high levels of absorption.

Real estate industry experts are optimistic that this trend will continue in 1987. The two caveats for this bright outlook are a strong economy with moderate oil prices and low inflation.

“San Diego real estate in 1987 will perform better than almost all parts of the United States, particularly in the housing and industrial sector,” said Sanford R. Goodkin, chairman of the Goodkin Group, a real estate consulting firm. “This is an exquisite place to live, and it is slowly becoming a more dynamic economic environment.”

In the for-sale housing market, sales of single-family homes and condominiums will remain strong in 1987, although they probably won’t reach the peaks of 1986.

Sales of homes and condominiums should total between 15,000 and 20,000 for the year, estimated Steve Bottfeld, president of Insites, a real estate research firm.

The hottest areas for development will be the South Bay, North County along the coast and the Interstate 15 corridor.

A great deal of new housing construction is still under way, but the demand in 1987 should be enough to satisfy the supply.

The median price of a new home will remain in the $150,000 range, according to Bottfeld, and the median price of new condominiums will stay above $100,000, where it was for the latter part of 1986.

With the new tax law making many real estate investments less attractive, many people may invest more money in their homes. Bottfeld sees a demand for subdivisions in the $300,000 to $700,000 range.

In the condominium market, Bottfeld expects a return to condominium conversions. As rents rise, which he expects will happen, home ownership becomes a more attractive option.

The apartment construction market did well in 1986, although it didn’t experience the kind of boom experienced in the the for-sale housing segment. Compared with the previous year, construction slowed down, primarily because of the pending tax bill that became law during the year.

During the year, vacancies topped 6%, the highest level in recent history. Howver, that figure still indicates health in an industry in which a 5% rate is considered normal.

Apartment construction should slow further in 1987, predicts George R. Carlson, a senior sales consultant in the commercial real estate division of John Burnham & Co.

“It’s tough to find available and affordable land, plus there are more constraints on new construction,” he said. “In addition, the tax-oriented investors are out of the market.”

With the drop in construction, Carlson expects vacancy rates to drop, which will result in rent increases.

The best areas for development in 1987 are the close-in neighborhoods such as Hillcrest, Normal Heights, North Park and Mission Valley. Other good areas, according to Carlson, are Chula Vista and beach communities such as Pacific Beach and those farther north.

The Golden Triangle will continue to have an oversupply of apartments, but more units will be rented in 1987, he said. There is overbuilding in other areas, too, including Escondido and Vista.

The downtown office space glut has been well-publicized. Slowly, however, the space is being leased.

Even with expected new construction, the vacancy rate will continue to drop and should be down to 6% by mid-1988, forecasts Ronald J. Barbieri, a principal with the Torrey Urban Research Institute. He expects the large rent concessions of the last few years to diminish.

Barbieri is bullish about downtown because, first, there will not be a lot of new space completed in the next few years and, second, the major service firms and banks are expanding their downtown operations, he said.

“The insanity of oversupply of the past few years is gone,” said Paul LaFrenz, who is involved with leasing and sales for Coldwell Banker. “The lenders won’t allow that to happen again.”

Although downtown will remain the hub of the county’s office space inventory, the suburban areas will become more important because space there is cheaper and more companies want to be closer to their employees’ homes.

The Mission Valley office market also will remain healthy, Barbieri said, because it is a lower-priced yet centrally located alternative to downtown, it is accessible to housing centers, and restaurants and other support facilities continue to attract tenants.

Likewise, Barbieri expects continued growth in North City, which has become another important part of the office market in San Diego because of its proximity to many people’s homes. This area includes the Golden Triangle, Torrey Pines, Sorrento Mesa and Sorrento Valley, Governor’s Park, Del Mar Heights and the western part of Miramar.

In Kearny Mesa, vacancies are declining, and little new construction can take place because of the lack of land.

The north coastal area, which includes Carlsbad, has excess space available, and, although a great deal should be absorbed in 1987, there will continue to be an oversupply, said Jon Walters, an office building specialist with Coldwell Banker.

Research and development space is now seeing the kind of oversupply that plagued downtown office buildings. Overbuilt areas include Miramar, North City, the Interstate 15 corridor and the North County coastal areas, particularly Carlsbad. The countywide vacancy rate is about 17%, according to Barbieri. Although these buildings are being leased at very high rates, there will still be excess space in the next two years.

Sorrento Mesa is becoming a new research and development center, joining Kearny Mesa, Torrey Pines and Sorrento Valley--historically the core for R&D--according; to Barbieri. Carlsbad and the Interstate 15 corridor are also emerging as desirable places for R&D; facilities.

In contrast with the high vacancy rate for R&D; space, the rate for industrial space is about 5%.

Although Barbieri expects new industrial development to stay ahead of demand, he thinks supply will generally stay in balance and won’t experience the gluts seen in the office and R&D; markets.

Future industrial development will be clustered along the Interstate 15 corridor, in the East County, in North County, and in the South Bay, where the growth of twin plants with Mexico will spur construction.

The retail market also is in balance.

Two new regional shopping centers, Horton Plaza and North County Faire, have opened in San Diego County in the last two years. Still, there should be a good market for smaller, innovative neighborhood centers and for restaurant parks, according to Goodkin. In addition, Goodkin believes, profitable opportunities exist in rehabilitating older neighborhood centers.