Marcus & Millichap

Central Coastal California Local Office Report

Second Quarter 2019

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Tight Conditions Unable to Motivate Development; Investors Examine Medical Office

Vacancy remains cyclically tight. In the past two years, employment growth in the Central Coast region exceeded or met the national rate of increase. Much of this job creation stemmed from expansions by traditional office-users in the government, healthcare and professional and tech services sectors. Payroll enlargements by these firms supported increased demand for available office space, translating to the absorption of more than 800,000 square feet over the 24-month period. While consistent leasing velocity placed regional vacancy at a cyclically low level entering this year, a lack of available labor will make it difficult for businesses to expand operations in 2019. Companies’ inability to lease additional or larger floor plans this year will place slight upward pressure on absorption, equating to a nominal rise in vacancy. Longer term, barriers to housing development have the potential to hinder job growth and office use, resulting in more sizable upticks in vacancy.

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