The City of San Diego Left $200 Million on the Table

$534,726.50 a month for 240 months. That was the City of San Diego's rent obligation at 101 Ash Street, an asbestos riddled, 19-story tower that has sat empty for all but a few weeks since Sempra moved out in 2015.

Yesterday the Union-Tribune published a ledger of the city's real estate record, drawn from City Auditor reports going back to 2021: a $50-a-month lease on more than a dozen beachfront acres, a country club paying the city 5% of revenue when the portfolio average is 11%, a quarter of city leases sitting in holdover, a fire-truck repair yard whose buildout more than doubled between the council memo and the estimate, and more than $200 million wasted on 101 Ash. Tomorrow the City Council takes up the latest amendment to the Ash Street deal.

It's easy to read this as government being bad at real estate. The more useful read is that none of these were market problems. They were process problems, and I see the same six in private leases across Southern California every week. Here they are, with what each one looks like when it's your lease.

1. 101 ASH STREET: KNOW WHO IS PAYING YOUR ADVISER

The city entered a 20-year lease-to-own on 101 Ash without an independent property assessment. The person negotiating on its behalf was described publicly as a volunteer. He was later found to have received $9.4 million from the landlord, Cisterra Development, across the Ash Street and Civic Center Plaza deals, pleaded guilty to a misdemeanor conflict-of-interest charge, and agreed to return the money. He has said he told senior officials he intended to be paid. The city says it didn't know until it subpoenaed documents in litigation.

The lesson isn't about one broker. It's about a question most tenants never ask in writing: who else is paying you on this deal, and how much? California has required a written agency disclosure on commercial leases longer than a year since January 1, 2015. The form tells you whether your broker represents you, the landlord, or both. It doesn't tell you what the landlord is paying them, or whether the firm across the table also holds the listing on the building you're touring. Ask. Get the answer in writing before the LOI, not after the lease.

The adviser at the center of the Ash Street deals also championed that 2015 disclosure law...a form doesn't protect you from a payment nobody put on the form.

2. OTHELLO AVENUE: THE TI NUMBER IN THE MEMO IS NOT THE TI NUMBER

Staff told the council a Kearny Mesa repair facility would need $6.5 million in tenant improvements. The estimate came in at $14.8 million, more than double, and auditors found the city would be five years into a 15- to 30-year lease before it could use the building for the fire-truck repairs it was leased for.

Two weeks ago I wrote about why a 2023 TI allowance doesn't buy a 2026 buildout. This is the other half of that problem. The number in the proposal is a placeholder until a contractor has walked the space with your drawings. Every week between LOI and lease execution is another week of design drift and material pricing. If the buildout comes in $200,000 over the allowance, you want to know that while you can still walk, not after you've signed for ten years of rent.

Get the construction estimate before the LOI. Then negotiate the allowance, the free rent, and the delivery date against a real number.

3. KETTNER AND VINE: KNOW THE LANDLORD'S BASIS BEFORE YOU KNOW THE RENT

In 2024 the mayor proposed a 35-year lease on a vacant warehouse north of Little Italy for a 1,000-bed shelter for the unhoused. Starting rent was almost $2 million a year with 3.5% annual increases, more than $90 million over the term, plus $18 million in upgrades. The landlord had bought the building for $13 million shortly before and, per county records, borrowed millions against the proposed lease while it was still a proposal. The city never inspected the building. The deal died in early 2025.

Run the math the city didn't. First-year rent at roughly 15% of the landlord's purchase price. At 3.5% compounding, year-35 rent is about 3.2 times year-1 rent. A landlord who just closed at a low basis has a return hurdle you can calculate, and it tells you where their walk-away is. It's the same point behind the Downtown ownership reset: five towers traded at 54% to 73% below their prior sale, and the rent in every lease inside them was set by someone with a different basis than the person who owns them now.

Check the last sale, it's public record. You should know what the building cost the person you're negotiating with.

4. 25% IN HOLDOVER: MONTH-TO-MONTH IS A POSITION, NOT A PLAN

Auditors found hundreds of city leases lapsed into month-to-month status through inaction, and a quarter of the portfolio is still in holdover years after the finding. On the landlord side that cost the city rent increases it couldn't impose. The Union-Tribune's other line is the one for tenants: those businesses "are denied the certainty their businesses need."

For a private tenant, holdover is worse than that. Most leases price holdover at a premium to the last contract rent, and a tenant in holdover has no alternative in hand, which means no leverage. Renewal leverage exists only while a credible alternative exists. Take the requirement to market 18 to 24 months out. Inside twelve months you're negotiating with yourself, and your landlord knows the date better than you do.

5. FAIRBANKS RANCH: THE OPTION IS ONLY WORTH SOMETHING ON THE DATE

Fairbanks Ranch Country Club reported $16.7 million in revenue for the year ending June 30, 2025. It paid the city $863,000 in rent for calendar 2024, about 5% of revenue, against an 11% average across the city's golf leases. The lease allows the city to reappraise and reset rent in 2026. Auditors said doing so could generate millions a year. The city says it has raised the rent but hasn't said by how much.

Tenants miss their dates the same way. Renewal options, expansion rights, contraction rights, early termination, and rent resets all carry notice windows, often 9 to 12 months before expiration and sometimes longer. Miss the window and the right evaporates, and the clause you negotiated hardest is worth nothing. Calendar every date in the lease the week you sign it. Set the reminder for 60 days before the window opens, not the day it closes.

6. BARNES TENNIS CENTER: 35 YEARS WITHOUT A RESET

More than a dozen acres leased in Ocean Beach, 35 years at 50 a month, to an operator that now generates more than $7 million a year with its for-profit partners. The auditor also found the city has never taken formal enforcement action against any of its more than 900 tenants.

A 35-year lease with no reset means one side guessed wrong in year one and lives with it for three decades. Here it was the city. For a tenant, the mirror image is the fixed-rate renewal option, and in a 27% availability Downtown market it costs less than it will in the next cycle. Term length isn't the risk. Term length without a reset, a cap, or an exit is.

THE BOTTOM LINE

The city tried to fix this by hiring a new director and renaming the Real Estate Assets Department, READ, to the Department of Real Estate and Airport Management, DREAM. Staff circulated a memo calling the department "toxic, hostile, revenue-wasting" within two years and the director was gone six months later. The city now projects an average general fund shortfall of $108 million a year through 2031 and has been trimming library hours and park services to balance it.

None of this came down to the market. No appraisal, no inspection, no calendar, and nobody asking who was getting paid. Every one of those is a step you can take before you sign and can't take after.

Send me your lease and I'll evaluate which of the six it has, in writing, before your landlord does. Call me with any questions.

Jamal Brown | The Ocean Co | DRE #01780052

Tenant-only commercial real estate advisory serving San Diego, Orange County, Los Angeles, and Riverside counties.

858.796.3390 | jbrown@theoceanco.com | theoceanco.com

Sources: San Diego Union-Tribune, "'Money on the table': San Diego's record of negotiating leases, managing real estate is costing millions," Sept. 13, 2026; City of San Diego Office of the City Auditor reports on the Barnes Tennis Center lease (Aug. 2026), golf course leases (Feb. 2026), lease management and renewal process (2022), and building acquisition process (2021); City Attorney closed-session update on the 101 Ash credit tenant lease (April 2022); NBC 7 San Diego, March 2023.

CRE Market Dynamics Suggests Talent Drives Decisions

Large leases

This week alone, three separate leases landed across three different counties that have nothing to do with tariffs, interest rates, or the usual reasons companies sign leases. Waymo, the autonomous driving company, took 106,000 square feet at a Chula Vista industrial park to build its San Diego foothold. FieldAI, a robotics startup, grabbed 41,000 square feet at Irvine Company's 3 Morgan building in Irvine Spectrum. And in LA's South Bay, aerospace and defense companies riding a wave of fresh venture capital are now responsible for nearly one in every five new industrial leases signed in that submarket, according to JLL research.

None of these are backfills. None of these are renewals. These are new-to-market and expanding tenants in categories that barely existed as a leasing force five years ago, and they're picking Southern California specifically, not because it's cheap, but because it isn't.

Here's why that distinction matters. The South Bay's aerospace and defense boom is happening around companies like Anduril and SpaceX, clustered near El Segundo and Torrance, where decades of aerospace manufacturing history left behind exactly the kind of specialized talent pool and government contract proximity these companies need. You can't manufacture that overnight in a cheaper market. Irvine Spectrum's pull on robotics and AI tenants like FieldAI, layered on top of MobilityWare's earlier 51,000 square foot lease at Irvine Company's 440 Exchange, is part of what's shaping up as an 11 million square foot leasing year for tech tenants in that submarket alone. Waymo skipping past cheaper logistics-only markets to plant its San Diego flag in Chula Vista tells the same story from a different angle.

CBRE's latest tech talent rankings back this up at the macro level. Los Angeles-Orange County and San Diego both hold upper-tier positions nationally right now, even as what CBRE is calling an "AI realignment" sorts winners from losers among tech hubs across the country. Some metros are losing ground in this shakeout. Southern California, across two of its biggest submarkets, is holding position or gaining it.

Why does this matter if you're not personally leasing space to a robotics startup? Because this is a fundamentally different kind of demand than the leasing activity we've been tracking all year. Tariff-driven industrial demand is price-sensitive and cyclical, it shows up when trade policy creates urgency and can evaporate just as fast. Retail backfill demand chases whatever's cheap and available. Aerospace, defense, and AI-adjacent tenants are chasing talent density and specialized infrastructure, which makes their demand stickier and considerably less sensitive to a few points of rent. That's the kind of tenant base that puts a floor under asking rents in the submarkets where it clusters, whether or not you ever do business with a single one of them directly.

If you occupy space anywhere near El Segundo, Torrance, Irvine Spectrum, or the Otay Mesa-Chula Vista corridor, this is worth watching closely over the next 12 months. Rising demand from a sticky, well-funded tenant category in your immediate submarket changes your negotiating leverage even if your own business has nothing to do with satellites, robots, or self-driving cars.

California's Hospitals Are Under Financial Pressure. Here's What It Actually Means for Medical Office Space and Private Practices.

Scripps Mercy Hospital in San Diego County is on a list it shouldn't be on. So are Martin Luther King Jr. Community Hospital, East LA Doctors Hospital, Hollywood Presbyterian, and PIH Good Samaritan, all flagged among 83 California hospitals facing a heightened risk of closure, service cuts, or layoffs. California has more hospitals on that list than any other state in the country.

Before we get into why, it's worth being precise about what's actually driving this, because it's not one single cause. California hospitals have been financially strained for years from low reimbursement rates, COVID-era losses, staffing costs, and a wave of seismic retrofit requirements coming due in 2030 that many older facilities can't afford. Layered on top of that now is the One Big Beautiful Bill Act, the federal budget law signed in July 2025, which restructures how Medicaid gets financed nationally. Supporters of the law frame it as closing loopholes states used to inflate federal matching funds. Critics frame it as a direct hit to safety-net providers. Both things can be true depending on which hospital you're looking at, but the numbers are the numbers regardless of which side of that argument you're on.

Here's what the law actually does: it phases down the provider tax states use to help fund their share of Medicaid, from 6 percent down to 3.5 percent by 2032. It caps state directed payments, the supplemental payments many hospitals rely on to make up the gap between what Medicaid pays and what care actually costs, at 100 percent of Medicare rates in expansion states like California. Starting in January 2027, Medi-Cal will require most adult enrollees to log 80 hours a month of work or qualifying activity to keep coverage. The California Hospital Association estimates that requirement alone could leave 2.1 million Californians uninsured. The Congressional Budget Office projects the law will cut roughly $900 billion to $1 trillion in federal Medicaid and CHIP spending nationally over ten years.

Rural hospitals get most of the headlines, and California does have real exposure there too, 16 rural hospitals currently flagged at risk of closure with 5 at immediate risk, according to the Center for Healthcare Quality and Payment Reform's most recent count. Glenn Medical Center's emergency room closed last October. But the more relevant story for anyone reading this in Los Angeles, Orange County, or San Diego is the urban safety-net hospitals, the ones serving high-Medi-Cal, high-uninsured populations in dense metro areas. Those are the facilities most exposed to both the provider tax phase-down and the coverage losses hitting simultaneously.

The state has stepped in with a Distressed Hospital Loan Program and emergency grants, but the scale mismatch is stark, tens of millions in state relief against hundreds of billions in federal financing changes. That gap is exactly why this matters for real estate, not just health policy.

Here's the part that affects anyone leasing or investing in medical space. Hospital systems under financial pressure pull back on capital projects, freeze expansion, and in some cases shed real estate they no longer need, medical office buildings attached to a financially stressed anchor hospital carry more tenant risk than they did two years ago, and that's worth underwriting carefully if you're evaluating a lease or an acquisition near one. At the same time, when inpatient and ER access shrinks in a community, outpatient demand doesn't disappear, it shifts. Urgent care, ambulatory surgery centers, and private practices often absorb that volume, which can mean real leasing opportunity in the right submarkets even as the hospital anchor struggles.

Private practices themselves aren't insulated either. Groups with a heavy Medi-Cal patient mix are facing the same reimbursement pressure as the hospitals, and some will need to renegotiate lease terms, right-size their footprint, or shift their specialty mix toward better-reimbursing procedures just to keep the lights on. If you're a physician group or medical tenant thinking about your next lease cycle, this is exactly the kind of financial headwind worth building into your negotiating position now, not after your landlord already knows you're stuck.

Why You Need A Tenant Rep - Even On Renewals

New Data Just Proved What Tenant Reps Have Been Saying for Years Renewing Your Lease Without Shopping It Is Leaving Money on the Table

Cushman & Wakefield just did something useful. They pulled the data on more than 220 Orange County office relocations and compared the outcomes against tenants who simply renewed in place. The results should be required reading for any executive whose lease is coming up in the next 18 months.

Tenants who relocated landed higher quality buildings, larger tenant improvement allowances, and three additional months of free rent compared with tenants who just renewed. Three months. On a typical five year term, that's not a rounding error, that's real capital staying in your business instead of going to a landlord who already knew you weren't planning to leave.

Here's why this happens, and it's not brain science. When you tell your landlord you're renewing, you've already shown your hand. You've told them you don't want to move, you’re a captive audience, which is exactly the information a landlord needs to offer you the least generous terms they can get away with. Landlords aren't villains for doing this, it's just leverage, and you handed it to them the moment you signaled you haven’t been shopping the market. Tenants who actually go out and tour competing buildings create real competition for their tenancy. Competition is what produces better buildings, bigger TI packages, and more free rent. It isn't complicated, but almost nobody does it, because touring the market feels like more work than just signing the renewal that lands in your inbox.

This is the exact dynamic that makes exclusive tenant representation valuable, and I'd be saying this even if I didn't do this for a living, because the (shocker) data says it plainly. A broker who only works for tenants has zero incentive to steer you toward staying put quietly. My incentive is the opposite, find you the best outcome, whether that means relocating or using a competing offer to force your existing landlord to match it. Landlord-side and dual agency brokers structurally can't offer you that same posture, because half their business depends on keeping buildings full and landlords happy.

There's a time element here too, and it connects to something worth watching. Cushman's own researchers expect this relocation advantage to narrow as Orange County's construction pipeline runs dry. We've talked before about how the Inland Empire's industrial pipeline has collapsed to a fraction of what it was two years ago. The same dynamic is building in office. Fewer new buildings competing for tenants means less leverage for tenants down the road, which means the gap between "renewed passively" and "relocated strategically" should actually widen in the near term before it narrows for good.

If your lease has 12 to 18 months left on it, the math here is straightforward. Even if you have zero intention of actually moving, running a real market process before you renew is how you capture the terms this data shows relocating tenants are getting. The building you stay in and the building you almost moved to aren't different in that regard, what's different is whether your landlord believed you had somewhere else to go.

Jamal Brown is a Tenant-Only commercial real estate advisor with 23 years experience in Southern California.

In-N-Out Just Made One of LA's Biggest Office Deals This Year

Every few months another headline tells you California is bleeding companies to Texas and Tennessee. Sometimes it's true, although the reasons vary wildly. This is quite the opposite.

In-N-Out just leased an entire 98,000 square foot office building at San Dimas Corporate Park in LA County, about ten miles from the Baldwin Park drive-thru where the company was founded in 1948. It's the third-largest office lease signed in LA County over the past year. In-N-Out is moving its headquarters back to LA from Orange County, closing the loop on a relocation the company announced roughly a year ago and plans to fully complete by 2029.

Here's the twist that makes this worth paying attention to instead of just smiling at. In-N-Out is simultaneously opening a roughly 100,000 square foot office near Nashville to support its eastward expansion into the Southeast. Read a headline about that piece alone and you'd write "In-N-Out plants flag in Tennessee, California loses again." Read the whole story and it's the opposite. In-N-Out isn't leaving. It's growing in two directions at once, doubling down on its Southern California roots while it expands somewhere new. That's not flight. That's a company big enough to do both.

The timing matters too. This lease landed during one of the roughest stretches the LA office market has seen, tenants have given back about 1.9 million more square feet than they've leased over the past year, according to CoStar. A company making a generational, multi-decade real estate bet on LA County in the middle of that environment is a signal worth more than the vacancy stat itself.

This fits a pattern CBRE highlighted in its 2026 headquarters relocation research. Companies relocating within the same metro areas rather than leaving it are rising nationally as businesses rethink how much space they actually need in a hybrid world. Locally, you can see it everywhere if you're watching for it. Targus relocated its Anaheim headquarters (literally across the street) downsizing its office footprint from 200,000 square feet to 84,000 while upgrading its warehouse operations with taller ceilings and tighter racking to store more product in less space. UST just opened a new headquarters office in Aliso Viejo. Global law firm Goodwin is relocating its downtown LA office to the Arts District while simultaneously opening a new San Diego office this summer. Irvine-based Connected Dealer Services just relocated to a bigger headquarters in the same city.

None of these companies are leaving Southern California. They're all restructuring how much space they use and where within the region they use it, smaller, smarter, better located, more efficient. That's a fundamentally different story than the one the interstate relocation headlines tell, and it's the one that actually matters if you're trying to understand what's happening to the office market you occupy.

If you're a founder or executive evaluating your own footprint this year, the real question isn't whether to stay in Southern California. Almost nobody credible is asking that question. The real question is whether your current space still matches how your company actually operates, and whether a smarter intrametro move, like Targus, like In-N-Out, like Goodwin, could free up capital or improve your operations without uprooting your team or your client relationships.

SoCal Retail Was Untouchable For Years. The First Real Cracks Are Showing, and They're Not Where You'd Expect.

For the better part of a decade, Southern California retail has been the one property type nobody could crack. Vacancy sat near record lows across the region. The moment a storefront went dark, a dollar store, an ethnic grocer, a fitness chain, or a quick-service concept backfilled it within months. Landlords held every ounce of leverage. If you were a tenant looking for retail space in a decent location, you paid what was asked or you didn't get the space.

That story is still mostly true. But the first real cracks are starting to show, and they're not showing up where the headlines usually look.

Orange County's retail vacancy climbed to 4.9 percent in the first quarter of 2026, up 50 basis points from the prior quarter and 40 basis points year over year. That doesn't sound dramatic until you know the context, that number is now above the county's 10 year quarterly average of 4.5 percent for the first time in a long stretch. Orange County retail has essentially never been loose. Now it's a hair looser than its own historical norm.

The bigger crack is in the Inland Empire. Retail availability there has expanded from a decade-plus low of 5.7 percent at the end of 2022 to 6.8 percent as of early 2026, which now ranks on the high end among major US retail markets. The driver isn't demand collapsing. It's a wave of national retailer bankruptcies working through the system, Big Lots, 99 Cents Only, and Rite Aid all closed stores across the Inland Empire over the past two years, and those big-box boxes are sitting empty longer than the small storefronts ever did.

Here's what makes this interesting instead of alarming. While vacancy ticks up in specific pockets, capital is pouring into SoCal retail at a pace that suggests nobody smart thinks this is a downturn. Retail investment sales across LA, Orange County, Ventura, and the Inland Empire hit $3.52 billion in the first half of 2026, up almost 62 percent from the same period last year, even though the actual square footage traded fell 28 percent. Translation, investors are paying more per deal for less volume because they're chasing quality, not spreading bets across the market. Asking rents are still climbing too, up 1.1 percent to $2.36 a square foot triple net regionwide.

So what's actually happening is a split market, not a soft one. Prime, well-anchored, well-located retail space is as tight and expensive as it's ever been, and if that's what your business needs, don't wait for a discount that isn't coming. But the vacated big-box boxes left behind by Big Lots, 99 Cents Only, and Rite Aid are a different animal entirely. Those spaces are large-format, oddly configured for most retail concepts, and landlords sitting on them are motivated in a way they haven't been in years. If your business can use 15,000 to 40,000 square feet and you're flexible on layout, that's where real negotiating leverage exists right now, not in the tight, backfilled-in-a-month corridors everyone assumes are the whole market.

If you're a retailer, restaurant group, medical user, or service business evaluating space anywhere in Southern California this year, the question isn't whether the market is tight. It's whether you're looking at the segment where it's tight, or the segment where it just cracked open.

Jamal Brown

The Ocean Co.

Tariffs Thought to Make Southern California Industrial Barren. Instead They Might Be Handing Tenants Their Best Window In Years

A year ago the headlines were all doom. Tariffs were going to gut demand for warehouse space tied to the ports of LA and Long Beach, and for a minute they did. Leasing slowed as importers waited to see which tariff rates would actually stick.

Fast forward to Q2 2026 and the story has flipped in a way nobody was really forecasting. Nationally, industrial absorption is on pace to hit 200 million square feet this year, up from 155 million in 2025, and a chunk of that is tariff driven. Companies that import goods are leasing 20 to 30 percent more warehouse space than they used to, not because business is booming, but because they're hoarding inventory as a hedge against the next round of trade policy chaos. Uncertainty, it turns out, eats square footage.

Here in Southern California, the port-adjacent epicenter of all this, the picture is more nuanced and more interesting for anyone occupying industrial space right now. The Inland Empire and Orange County both posted double-digit gains in leasing activity this quarter. Brokers on the ground are describing something that hasn't been true in two years, corporate America is actually writing letters of intent again, not just touring space. One Inland Empire broker put it bluntly this quarter, “the quality of demand has shifted from window shopping to actually taking down blocks of space”.

But here's the part that matters more than the leasing headline. Development has essentially stopped. The Inland Empire delivered around 12 million square feet of new industrial product in all of 2025. In the first two quarters of 2026 combined, it delivered roughly 2 million. The construction pipeline is sitting near decade lows. That's not a small detail, that's the whole story. Vacancy in the Inland Empire is still elevated, sitting in the 7.5 to 8.7 percent range depending on which brokerage you ask, and rents have fallen 23 to 34 percent from their 2023 peak. That combination, still-depressed rents plus a construction pipeline that's basically dried up, is unusual and it will not last. Once the existing vacant inventory gets absorbed by this renewed leasing activity, there's nothing behind it to keep landlords honest on price. Right now, tenants are negotiating against a landlord who's still nervous. In 18 months, that same landlord may not be.

San Diego industrial tells a quieter version of the same story. Vacancy has essentially tripled over the last three years to just above 7 percent, though it's held roughly flat year over year and remains below the national average. Rents are flat too, sitting around $1.40 a square foot. Sublease space ticked up for a second straight quarter. It's not the leverage bonanza the Inland Empire is seeing, but it's not a landlord's market either, and if you're a San Diego occupier waiting for a screaming deal, you may be waiting for a market that's already quietly stabilizing under you.

One more wrinkle worth knowing if you're a smaller importer or distributor. All this big-box leasing activity from "corporate America" doesn't help you if your footprint need is under 10,000 square feet. That segment is structurally undersupplied nationally, and it's exactly the size tier that tariff-squeezed small and mid-size businesses need most. If you're in that bucket, don't assume the broader vacancy numbers translate to easy availability for you specifically. They usually don't.

If you're sizing industrial space anywhere from the Inland Empire to San Diego in the next year, the practical takeaway is this. The negotiating leverage tenants have held for two years is still here, but it's on a countdown clock tied directly to how fast this leasing rebound eats through existing vacancy. Lock in terms while the landlord across the table is still the nervous one.

Jamal Brown, Principal

The Ocean Company

The SoCal Office "Recovery" Story Everyone's Telling You (And What They're Leaving Out)

If you've read a commercial real estate headline in the last month, you've seen some version of "office leasing is back." Greater LA tenants signed almost 4 million square feet of office space in Q2, up 15% from the prior quarter and 8% year over year. That's the highest quarterly total in years. Feels like good news, right?

Here's what those headlines don't lead with. Overall office availability across Greater LA is still sitting at 26.6%. That's down a measly 130 basis points from a year ago. One in every four square feet of office space in this market is empty, and the "recovery" barely moved that needle. Direct asking rents actually dipped slightly quarter over quarter. And landlords are still handing out concession packages near historic highs, meaning the rent tenants actually pay is well below what's quoted on the listing.

Dig one layer deeper and the story gets more interesting. Most of that leasing "surge" is coming from renewals and relocations, not new demand walking through the door. Translation: existing tenants shuffling around, not the market growing. When a dual-agency shop reps the landlord on one deal and the tenant on the next, guess which version of this story they're leading with when your renewal comes up. "Market's tightening, better lock it in now" reads a lot different when you know availability is still north of 25%.

The regional picture backs this up. Sublease space across SoCal fell 8.7% quarter over quarter and dropped 23.5% year over year, which is genuinely a good signal, the wave of tenants dumping space is finally receding. But total leasing volume across the region actually fell 23.8% quarter over quarter. Occupiers are being deliberate, not desperate. That's not a market where tenants have lost their leverage. That's a market where tenants still hold it, if they know where to look.

Three submarkets worth watching if you're a decision maker sizing space in the next 12 months:

San Diego industrial just posted its strongest leasing quarter in four years. Tenant requirements have doubled since late 2024 to 5.7 million square feet, with 17 active requirements above 100,000 square feet. Vacancy countywide dropped to 6.8%. If you're in industrial and thinking about waiting this out, that window is closing. Otay Mesa is the exception, vacancy still sits at 15.7% with more supply coming.

San Diego office, on the other hand, is "active but selective." Kearny Mesa, the College Area, Del Mar Heights and Carmel Valley are seeing the deal flow. Downtown San Diego has quietly turned a corner, about 80% of downtown office buildings have changed hands and the ownership churn that's dogged that submarket for years is mostly done.

South Bay LA is the sleeper. El Segundo posted the strongest positive net absorption in the submarket, leasing activity is running 14.2% ahead of the 2025 quarterly average, and sublease availability has shrunk for three straight quarters. Quietly one of the healthiest pockets in the county right now.

Here's the takeaway for anyone occupying space in this region. The market isn't dead and it isn't roaring back either. It's uneven, submarket by submarket, and the people telling you it's "back" usually have a listing that benefits from you believing that. I spent years on the ownership side managing buildings for groups like Kilroy and TIAA-CREF before I started representing tenants exclusively. I've seen how these headlines get built. Read the vacancy number, not just the leasing volume number, before you believe anyone's version of "the market is back."

Thinking about a renewal, relocation, or new lease in the next 12 months? Worth a conversation before you sign anything off a headline.

Jamal Brown

Principal

The Ocean Company

Social Calendar: Things to do in Sandiego - October 2025

October is the official end of summer in San Diego, but that doesn’t mean life slows down. This month is packed with outdoor events for adults and families.

Saturday, Oct 11

• La Jolla Art & Wine Festival – two-day art show with 170+ artists, wine & beer garden, and live music.

Sunday, Oct 12

• San Diego International Film Festival – screenings and premieres across La Jolla and Gaslamp Quarter.

Thursday, Oct 16

• Experience Encanto Art Stroll begins — community art walk and artisan vendors in Southeast San Diego.

Friday, Oct 17

• Mission Bayfest Reggae Music Festival (Oct 17–19) – three-day festival featuring top reggae artists on the bay.

• San Diego Symphony: Mendelssohn & Korngold: From Prodigy to Master – performance at Jacobs Music Center.

• La Mezcla | Ghostly Labor (UCSD Epstein Amphitheater) – dance and multimedia performance exploring labor and identity.

Saturday, Oct 18

• Renee Rapp – live concert at Cal Coast Credit Union Open Air Theatre.

• Alice Cooper, Judas Priest & Corrosion of Conformity – hard rock legends performing together.

Sunday, Oct 19

• Tianguis de la Raza Artisan Market – cultural celebration and artisan fair in Logan Heights.

Wednesday, Oct 22

• Boz Scaggs: Rhythm Review – live at Humphreys Concerts by the Bay.

Thursday, Oct 23

• North Park nightlife crawl – rotating craft beer specials and pop-up art installations.

Friday, Oct 24

• Art San Diego 2025 opens (Oct 24–26) – major contemporary art fair with galleries, live art demos, and installations.

Saturday, Oct 25

• Haunted Hotel Disturbance – Gaslamp’s long-running immersive horror attraction.

Sunday, Oct 26

• The Starting Line – pop punk band performing live at The Observatory North Park.

Tuesday, Oct 28

• Stereolab – avant-garde indie band at The Observatory North Park.

Wednesday, Oct 29

• Shintaro Sakamoto – psychedelic Japanese rock artist performing at The Observatory.

Friday, Oct 31 (Halloween Night)

• Haunted Gaslamp Quarter Block Party – DJs, live performances, and themed pop-ups.

• Belmont Park BOO Bash – family-friendly Halloween event with trick-or-treating and live entertainment.

What the Government Shutdown Means for SBA Loans and Commercial Real Estate Buyers in Southern California

If you are in the process of buying commercial real estate in Southern California, you have likely heard that the federal government entered a temporary shutdown on October 1, 2025. While these shutdowns are usually short-lived, they can cause meaningful slowdowns in deal flow—especially for those relying on SBA 7(a) or SBA 504 loans.

For now, the SBA has paused loan processing until funding resumes. Approved loans should remain intact, but any application still under review is temporarily frozen. While this delay can be inconvenient, it does not mean deals must stall entirely. With the right strategy and communication, many buyers can keep transactions moving forward.

How Different Property Types Are Affected

Office and medical office buyers may feel the most impact since SBA financing plays a major role in owner-user purchases. Industrial property buyers tend to have more options through conventional or private financing, meaning fewer delays. Retail and mixed-use properties sit in the middle—impact varies depending on lender and loan structure.

Workarounds for SBA Delays

There are practical ways to keep deals alive:

1. Bridge Financing: Some Southern California lenders offer short-term bridge loans that can close now and convert to SBA once the shutdown ends.

2. Private and Regional Lenders: Local banks and credit unions sometimes provide similar programs to SBA, allowing buyers to stay on schedule.

3. Document Readiness: Keep all financials and disclosures current so your file can move immediately once funding resumes.

4. Open Communication: Coordinate closely with your broker and escrow team to request extensions early and maintain seller confidence.

Our Opinion:

Historically, government shutdowns are temporary and funding typically resumes quickly. The key is to stay adaptable. Buyers should view this pause as a timing issue rather than a financial roadblock. Lenders are prepared to pivot once operations resume, and in the meantime, relationships with experienced brokers and local lending partners will be the biggest advantage.

How The Ocean Company Can Help

At The Ocean Company, we guide clients through every phase of the commercial real estate process—especially when market or government conditions shift unexpectedly. Our team works with a network of trusted SBA, regional, and private lenders across San Diego and Southern California to help clients identify flexible solutions. Whether you’re acquiring a medical office in La Jolla, an industrial property in Carlsbad, or an owner-user office in Mission Valley, we can help you strategize the best path forward.

The government may be on pause, but your business growth does not have to be. Contact The Ocean Company to explore financing options, secure bridge lending, and prepare for SBA loan funding to resume.

What Frequently Asked Questions (FAQ) Should You Know Before Leasing Commercial Real Estate

You should always hire an experienced tenant representative who can answer/assist with the following FAQs:

❓What are the key factors to consider before signing a commercial lease?

- Lease Term: Understand the length of the lease and whether it aligns with your business goals.

- Rent and Increases: Clarify the rent amount, any escalations over time, and how they’re calculated.

- Space Requirements: Ensure the space meets your current and future business needs.

- Location: Evaluate the location’s accessibility, visibility, and proximity to customers, suppliers, and employees.

- Lease Clauses: Review clauses related to maintenance, repairs, alterations, and subleasing to understand your responsibilities and rights.

⁉️What are common negotiation points in a commercial lease agreement?

- Rent Negotiation: Seek competitive rates & negotiate for rent abatement.

- Rent Escalation: Always seek the lowest annual increase possible.

- Lease Commencement: Always try to push a commencement date out until all of your tenant improvements are complete and you’re ready to fully occupy the space.

- Tenant Improvements: Negotiate for landlord-funded improvements or a large landlord contribution to construction costs needed to customize the space to your needs.

- Lease Term and Renewal Options: Negotiate for favorable lease length terms & renewal options to provide flexibility for your business.

- Operating Expenses: Clarify which operating expenses you’re responsible for & negotiate caps or exclusions to limit your financial exposure.

- Assignment and Subletting: Negotiate for flexibility to assign or sublease the space if your business needs change.

❓What are the important clauses to pay attention to in a commercial lease document?

- Maintenance and Repairs: Understand your responsibilities and liabilities for maintaining & repairing the premises.

- Default and Remedies: Clarify the conditions under which the lease can be terminated and the remedies available to both parties.

- Insurance Requirements: Review insurance obligations, including liability coverage and any required policies.

- Indemnification: Understand the extent to which you’re responsible for liabilities arising from the use of the premises.

- Termination and Exit: Pay attention to lease termination clauses, early termination options, and any associated penalties or obligations.

If you’re unclear on whether or not a space is right for you, or you’re just starting the process of finding a home for your business, we’re here to help.

The Shifting Tides of Commercial Real Estate Debt in 2025

The commercial real estate (CRE) world is changing fast in 2025, and two big areas—office vacancy rates and Commercial Mortgage-Backed Securities (CMBS) debt—are at the center of it all. Whether you’re a tenant looking for office space, a buyer eyeing an investment, or just someone keeping tabs on the market, understanding these trends is key to making smart moves in a tricky environment.

Let’s break it down.

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Office Vacancy Rates: What’s Going On?

The Big Picture

At the end of 2024, the national office vacancy rate hit 19.8%, up 1.5% from the year before. That’s a big jump, and it’s a clear sign that the office market is still struggling to adapt to the new normal. Remote and hybrid work aren’t going anywhere, and companies are rethinking how much office space they actually need. Many are downsizing or opting for more flexible setups, leaving landlords with empty spaces and shrinking rental incomes.

For tenants, this is a golden opportunity. With so much vacant space, landlords are more willing to cut deals—think lower rents, free renovations, or shorter lease terms. But while tenants are winning in the short term, the bigger picture is a little murkier. High vacancy rates can lead to falling property values and financial headaches for landlords, which could ripple through the market in unexpected ways.

San Francisco: A Cautionary Tale

If you want to see how extreme things can get, look no further than San Francisco. By the third quarter of 2024, the city’s office vacancy rate hit a jaw-dropping 37.3%—a new record. That’s more than one in three offices sitting empty. Why? San Francisco’s tech-heavy economy has been hit hard by the shift to remote work, and many companies are leaving the city altogether.

For tenants in San Francisco, this means incredible bargaining power. But for landlords, it’s a nightmare. Rising costs (like property taxes and maintenance) combined with falling rents are squeezing profits, and some are struggling to stay afloat. It’s a stark reminder that even in prime markets, the office sector is facing serious challenges.

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CMBS Debt: The Other Shoe Drops

Defaults Are on the Rise

While office vacancies are making headlines, the CMBS market is quietly facing its own crisis. CMBS—Commercial Mortgage-Backed Securities—are bundles of loans tied to commercial properties, and they’re a major source of financing for the industry. But in 2024, CMBS default rates nearly tripled, hitting 8.7%. That’s the highest level since the 2008 financial crisis.

What’s driving this? Rising interest rates. As borrowing costs go up, landlords are finding it harder to refinance their debt. This is especially true for single-asset, single-borrower (SASB) loans, which are tied to individual properties. When landlords can’t refinance or sell their properties, defaults become almost inevitable. And with so many office properties struggling, the CMBS market is feeling the heat.

The 1740 Broadway Wake-Up Call

If you needed proof that even the safest bets can go sideways, look no further than the 1740 Broadway office tower in New York City. In 2024, the AAA-rated bond tied to this property was downgraded after a failed sale and delays in appraisals. This was the first loss on a AAA-rated CMBS since 2008, and it sent shockwaves through the industry.

Why does this matter? AAA-rated bonds are supposed to be rock-solid, so a loss like this is a big deal. It’s a reminder that even the most secure investments can be risky in today’s market. For lenders and investors, it’s a wake-up call to be more cautious. For everyone else, it’s a sign that the CRE debt market is on shaky ground.

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What This Means for Tenants and Buyers

Tenants: It’s Your Moment

If you’re looking for office space, now’s the time to strike. With vacancy rates at record highs, landlords are desperate to fill their buildings. That means you can negotiate deals that would’ve been unthinkable a few years ago—lower rents, free upgrades, or even the ability to walk away if your business needs change.

But before you sign on the dotted line, do your homework. Make sure your landlord is financially stable and that the property is well-maintained. The last thing you want is to move into a building that’s headed for foreclosure.

Buyers: Proceed with Caution

For buyers, the market is a mixed bag. On one hand, falling property values and distressed sales can create great opportunities for those with cash to spend. On the other hand, rising interest rates and tighter credit conditions make financing more expensive and harder to come by.

If you’re thinking about buying, focus on properties with strong fundamentals—think location, tenant mix, and long-term growth potential. And don’t be afraid to walk away if the numbers don’t add up. In a market this volatile, patience is a virtue.

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What’s Next? Strategies for 2025 and Beyond

The commercial real estate market is in flux, but that doesn’t mean you can’t come out ahead. Here are a few tips for navigating the challenges and opportunities of 2025:

1. For Tenants:

- Use your leverage. Negotiate lower rents, better terms, and more flexibility.

- Do your due diligence. Make sure your landlord and the property are financially sound.

- Think long-term. Consider how your space needs might change in the next few years.

2. For Buyers:

- Look for value. Distressed sales and falling prices can create great opportunities.

- Be smart about financing. Lock in rates early and explore alternative funding sources.

- Stay disciplined. Don’t let FOMO (fear of missing out) push you into a bad deal.

3. For Lenders and Investors:

- Be cautious. Scrutinize borrowers and properties more closely than ever.

- Diversify. Spread your risk across different property types and markets.

- Stay informed. Keep an eye on market trends and regulatory changes.

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The Bottom Line

The commercial real estate market is facing some serious headwinds in 2025, from sky-high office vacancy rates to a shaky CMBS market. But with challenges come opportunities—for tenants, buyers, and investors who are willing to adapt and think strategically.

Whether you’re signing a lease, buying a property, or just keeping an eye on the market, staying informed is your best defense. The CRE world might be unpredictable right now, but with the right approach, you can still come out on top.

Q3 Figures for Medical Office Leasing Indicate Tighter Market for Southern California

Medical office space (MOB) in Southern California is in high demand, driven by demographic changes, evolving healthcare needs, and limited new construction. For healthcare providers and medical practices in San Diego, Orange County, and Los Angeles, these market presents unparalleled opportunities to secure strategic locations.

Here’s an in-depth look at the trends shaping the region’s medical office market and how The Ocean Company can help your practice thrive in this competitive landscape.

Why Medical Office Space Is in High Demand

The medical office market has remained resilient in the face of shifting economic conditions, bolstered by several key factors:

• Aging Population:

  • By 2050, households with adults aged 65+ in San Diego are projected to grow by 8 percentage points, with similar trends across Orange County and Los Angeles.

  • This aging demographic drives increased demand for healthcare services, creating a need for more specialized facilities.

• Outpatient Care Growth:

  • Advances in technology and patient preferences are shifting services from hospitals to outpatient facilities, fueling demand for well-designed MOBs.

• Limited New Development:

  • New MOB construction across Southern California has lagged, with fewer than 300,000 square feet built in San Diego since 2021 and only 60,000 square feet currently under construction.

• Convenience for Patients:

  • Healthcare providers are prioritizing locations close to residential areas to make care more accessible, especially in suburban neighborhoods.

Regional Trends in Medical Office Space

San Diego

San Diego’s medical office market is one of the most competitive in the region:

• Vacancy Rates: MOB vacancy rates in San Diego dropped to 6.1% in late 2023, the lowest in over 20 years.

• Development Pipeline: With limited new construction, areas like Chula Vista, Kearny Mesa, and East County are seeing increased activity as healthcare providers seek to meet growing demand.

• Biotech and Healthcare Synergy: San Diego’s robust life sciences and biotech industries create unique opportunities for medical practices to collaborate with research institutions.

Orange County

Orange County continues to attract healthcare providers due to its growing population and affluent demographics:

• Vacancy Rates: MOB vacancy rates stood at 11.7% in Q3 2023, reflecting steady demand.

• Rental Rates: Average lease rates remain consistent at $2.82 per square foot per month (triple net basis), making it a cost-effective option compared to other regions.

• Suburban Demand: Communities like Mission Viejo and Irvine are hotspots for new medical offices, as providers prioritize proximity to residential areas.

Los Angeles

Los Angeles boasts one of the largest medical office markets in the country, with diverse opportunities for healthcare providers:

• Vacancy Rates: MOB vacancy rates in Greater Los Angeles declined to 10.6% in Q2 2024, with total availability at 12.4%.

• Rental Trends: Average asking lease rates increased to $4.07 per square foot per month, reflecting strong demand for high-quality spaces.

• Urban and Suburban Opportunities: From Pasadena to Santa Monica, Los Angeles offers a mix of urban hubs and suburban communities ideal for a variety of healthcare specialties.

The Benefits of Medical Office Space for Healthcare Providers

Investing in medical office space offers several advantages for healthcare businesses:

• Purpose-Built Spaces:

  • Designed to accommodate specialized equipment, exam rooms, and waiting areas, MOBs enhance operational efficiency.

• Stable Demand:

  • Healthcare services are essential and recession-proof, ensuring long-term occupancy and stable revenue for property owners.

• Strategic Locations:

  • MOBs are often located near hospitals, residential neighborhoods, and transportation hubs, making them convenient for patients and staff.

How The Ocean Company Can Help

Securing medical office space in Southern California requires expertise and local market knowledge. The Ocean Company specializes in tenant representation and investment sales, ensuring healthcare providers find the right location for their needs.

Our Services:

• Market Insights:

  • We provide detailed analyses of the medical office market in San Diego, Orange County, and Los Angeles to identify prime opportunities.

• Strategic Negotiation:

  • We negotiate lease and purchase terms that align with your practice’s goals, helping you maximize your investment.

• Tailored Solutions:

  • Whether you’re a small practice or a multi-specialty group, we customize our approach to meet your unique requirements.

Tips for Finding the Perfect Medical Office Space

1. Start Early: Begin your search well before your current lease expires to secure the best options.

2. Define Your Needs: Consider factors like patient demographics, proximity to hospitals, and space requirements for equipment.

3. Leverage Local Expertise: Partner with a brokerage that understands the intricacies of medical real estate in Southern California.

The Future of Medical Office Space in Southern California

As the population ages and healthcare evolves, the demand for medical office space in San Diego, Orange County, and Los Angeles will only continue to grow. Limited new construction and increasing competition make now the perfect time to secure your ideal location.

Secure Your Medical Office Space Today

If you’re ready to expand, relocate, or establish a new practice, The Ocean Company is here to help. With expertise in the Southern California market and a focus on tenant representation, we’ll guide you to the perfect space for your practice.

Contact us today to schedule a consultation and explore available medical office spaces in San Diego, Orange County, and Los Angeles. Let’s find the space that supports your growth and success!

Budding Opportunities in Downtown San Diego’s Office Market

With a high vacancy rate and declining lease costs, downtown San Diego has become a tenant’s market. Businesses looking for office space now have greater flexibility and bargaining power, making this an ideal time to secure prime office locations at discounted rates.

1. Downtown San Diego’s Market Overview

Currently, the average vacancy rate in downtown San Diego is 31.5%, with a total availability of 36.6%. These high rates mean that landlords are increasingly willing to negotiate to secure tenants, resulting in a rare advantage for businesses seeking office space.

Key Recent Transactions

The sale of Five Thirty B and Symphony Towers at significant discounts highlights a broader trend affecting downtown office properties. The low demand has driven prices down, creating opportunities for tenants to secure office space at reduced costs.

2. Benefits for Tenants in Today’s Market

Businesses are discovering unique benefits as they negotiate leases in this evolving market:

• Reduced Rental Costs: Average asking rents have declined slightly, offering savings for businesses signing new leases.

• Flexible Leasing Options: Landlords may offer more flexible terms, such as shorter leases or generous incentives, to attract tenants.

• Prime Location Availability: High vacancy rates mean that premium locations, such as downtown San Diego, are accessible to a wider range of businesses.

3. Why Businesses Should Consider Downtown San Diego

Downtown San Diego’s appeal as a cultural and business hub makes it a strategic choice for companies. Access to restaurants, entertainment, and waterfront attractions creates a lively atmosphere for employees and clients alike.

Long-Term Prospects

While current vacancies are high, experts suggest that downtown San Diego will remain a desirable location due to its lifestyle offerings. Companies establishing a presence now may benefit from the area’s eventual recovery and increasing popularity.

For businesses seeking affordable office space in San Diego, the current market conditions downtown provide a compelling case to act now. With a glut of available spaces, tenants have a rare chance to lock in favorable leases in premium locations.

The Ocean Company is here to help your business find the perfect space in San Diego’s competitive market. Our team specializes in tenant representation and can secure the best lease terms for you. Contact us today to learn how we can help you take advantage of the current market conditions!

Sublease Space in Orange County Drops: What Tenants Need to Know

In Q3 2024, available sublease space in Orange County fell to 3.0 million square feet, representing a 7.2% decrease from last quarter and a significant 21.7% drop year-over-year. This decline suggests that sublease opportunities are becoming scarcer, especially as many companies let their sublease terms expire.

Understanding the Sublease Market

Subleasing has been a key strategy for businesses looking to reduce costs by leasing out unused office space. However, with the drop in available sublease space, it’s clear that fewer companies are offloading their excess office real estate. This could be due to companies reaching the end of their sublease agreements, or because fewer businesses are willing to sublease their space in the current economic climate.

Office Availability: A Look at the Numbers

Overall office availability in Orange County dropped by 10 basis points to 22.9% in Q3 2024, down from 24% a year ago. This may not seem like a significant shift, but combined with the fall in sublease space, it reflects a tightening market for tenants who may be looking for flexible options.

The Impact on Tenants:

• Fewer sublease options mean less flexibility for tenants looking to secure short-term or more affordable office space.

• Class A properties remain in demand, especially with trophy spaces added to the market, but availability is tight.

• Average asking rental rates are rising slightly, with the market seeing increases of $0.10 per square foot from the previous quarter.

How to Navigate the Market:

For tenants, this shift in the sublease market means fewer options and potentially higher costs. If you’re considering expanding or relocating, it’s important to act quickly before availability tightens further. Even if sublease space is not your preferred option, understanding its role in the overall market can help you make better leasing decisions.

If you’re searching for the best office space solutions in the Orange County or Los Angeles areas, let The Ocean Company guide you. Our expertise in tenant representation will ensure you get the space you need at a price that makes sense for your business.

Orange County Office Leasing Market Sees Surge in Q3 2024: What It Means for Tenants

The office leasing market in Orange County experienced a significant shift in the third quarter of 2024, recording 1.9 million square feet (msf) in leasing activity. This reflects a 29.9% increase from the previous quarter and a modest 2.3% increase year-over-year. These numbers indicate a positive shift in market dynamics, driven primarily by lease renewals.

Leasing Trends in Q3 2024: The Airport Area Takes the Lead

A substantial portion of the lease activity during this period came from the Airport Area submarket, a hub for financial services and insurance companies. These sectors were responsible for driving the demand, with many businesses opting to renew their leases rather than expand their office space. Notably, eight out of the top 10 lease transactions were renewals, showing that while leasing activity is up, new office space demand remains limited.

Why the Wait-and-See Approach?

Despite the uptick in leasing, occupiers are still cautious. Many businesses are adopting a wait-and-see approach, hesitating to expand or move into new spaces. This is largely due to the uncertainty surrounding the economy and the continuing trend of hybrid work models. As a result, many companies are choosing to downsize their office space footprints to reflect the reduced in-office headcount. This caution is something tenants need to be aware of as it shapes the market’s future availability and pricing.

Key Takeaways for Tenants:

• Leasing renewals are dominating the market, especially in key submarkets like the Airport Area.

• Financial and insurance sectors are driving demand, a factor to consider if you’re in a related industry.

• Tenants looking for new space may find limited availability as companies continue to downsize.

• With occupiers hesitant to expand, now could be a strategic time to renegotiate lease terms.

How The Ocean Company Can Help

Whether you’re looking to renew your lease or explore new opportunities, The Ocean Company specializes in tenant representation in the Orange County and Los Angeles markets. We have the expertise to help you navigate this shifting landscape and secure the best possible deal for your business.

Call us today to discuss your office space needs and discover how we can help you find the perfect solution.

Top Real Estate Strategies for Healthcare Practices

For healthcare practices looking to buy or lease real estate in Orange County, now is a great time to explore opportunities. Unlike the broader office market, which has been struggling, the healthcare real estate sector is thriving, which offers plenty of leverage for practices seeking new space. With vacancy rates still relatively low, particularly in medical office buildings (MOBs), demand remains strong, but there are areas where healthcare providers can benefit.

One key advantage for healthcare practices is the growing trend of office-to-medical conversions. As traditional office spaces continue to see high vacancy rates, landlords are increasingly willing to convert these properties into healthcare facilities. This trend gives practices a chance to negotiate favorable terms, especially if you’re targeting areas with older or underused office spaces that can be adapted for healthcare use. Areas like the Tri-Cities (Irvine, Newport Beach, and Costa Mesa) offer attractive options for practices looking to expand, as they are seeing positive absorption and interest from major health systems.

Another point of leverage is the shift towards outpatient care. With more healthcare providers moving away from large hospital-based models, there is an opportunity to secure space in growing suburban markets where patient demand is high but competition remains manageable. Practices specializing in high-demand areas like dermatology, ophthalmology, or physical therapy may find excellent leasing deals as landlords look to fill vacancies with stable, long-term tenants.

Lastly, the private equity slowdown in healthcare could work in your favor. With fewer acquisitions happening, independent practices might have more negotiating power when securing real estate, as institutional buyers are less aggressive. This could lead to more flexible terms or lower upfront costs when purchasing or leasing space. Now is the time to leverage these trends and position your practice for long-term growth in Orange County’s healthcare real estate market.

The Ocean Company is an advisory service for commercial tenants. If you have questions about facility leases or want to acquire or dispose of a commercial property contact us.

Email: info@theoceanco.com

Medical Practices Face Staffing and Facility Issues

Medical practices are currently facing significant challenges related to both staffing and real estate. These issues are compounded by a dynamic healthcare landscape shaped by increasing patient demand, economic pressures, and evolving care delivery models. Here are the biggest problems in these two areas:

Staffing Challenges

1. Labor Shortages: One of the most pressing issues is the nationwide shortage of healthcare workers, especially nurses, physicians, and medical support staff. As demand for healthcare services rises, fueled by an aging population and increased insurance coverage, medical practices struggle to find qualified personnel. According to recent surveys, burnout from the COVID-19 pandemic and long working hours are causing many healthcare professionals to leave the industry or reduce their hours.

2. High Turnover Rates: High turnover in medical staff is another problem. Replacing employees is expensive and time-consuming, leading to higher labor costs and reduced operational efficiency. This turnover impacts patient care and continuity, as well as staff morale.

3. Wage Inflation: To attract and retain talent, practices are facing significant wage inflation. Offering competitive salaries, bonuses, and benefits adds to operational costs, especially for smaller practices. For example, nurse and physician assistant wages have been rising consistently, pushing some practices to their financial limits.

4. Burnout and Workload: Many healthcare professionals are experiencing burnout due to high patient volumes, administrative burdens (such as documentation and insurance requirements), and increased complexity in healthcare regulations. This can affect job satisfaction, staff retention, and the quality of care provided to patients.

5. Administrative Burden: Medical practices also struggle with an increasing administrative burden, including regulatory compliance, billing, and insurance coding. These tasks often fall on medical staff or require dedicated administrative roles, adding to staffing pressures and increasing operational costs.

Real Estate Challenges

1. Rising Rental Costs: The cost of leasing medical office space has been rising steadily. With average rents for medical office space reaching record highs in 2023, practices in high-demand areas are struggling to balance the need for suitable space with their operational budgets. Practices may be forced to relocate or downsize to cope with rising costs, which can disrupt operations and patient accessibility.

2. Limited Availability of Space: Medical practices require specialized spaces that meet specific regulatory and clinical needs, such as exam rooms, diagnostic equipment spaces, and waiting areas. However, finding available properties that can be customized or retrofitted for healthcare use is challenging, particularly in urban areas with high real estate demand. This scarcity drives up prices and can lead to longer search times for suitable spaces.

3. Construction and Renovation Costs: The cost of constructing or renovating medical office buildings has soared due to increased prices for materials and labor. Practices looking to build new facilities or modify existing spaces face higher upfront expenses, which can impact long-term financial planning. Additionally, construction timelines have lengthened due to labor shortages and supply chain disruptions, further complicating expansion plans.

4. Long-Term Leases and Inflexibility: Medical office leases tend to be long-term, with tenants staying in the same location for years due to the high cost of moving and specialized fit-out needs. However, these long-term leases can pose a challenge if a practice needs to expand or downsize in response to fluctuating patient demand. Practices often find themselves locked into spaces that no longer meet their needs, or they must negotiate expensive lease modifications.

5. Competition from Larger Healthcare Systems: Large healthcare systems are expanding aggressively, and many are buying up medical office spaces or building their own facilities. Independent practices often find themselves priced out of prime locations or unable to compete for the best real estate, which can impact their ability to attract patients and retain staff.

6. Telehealth’s Impact: While telehealth has increased since the pandemic, it hasn’t completely alleviated the demand for physical office space. Many medical services, such as imaging, surgery, and lab work, require in-person visits. Balancing telehealth services with the need for physical office space presents challenges for practices trying to optimize their real estate investments.

Intersections Between Staffing and Real Estate Issues

• Space Requirements for Staff: As practices expand their teams or offer new services, the need for more space increases. However, the rising cost and limited availability of real estate can make expanding difficult. Conversely, staffing shortages may lead practices to operate with smaller teams, resulting in underutilized office space.

• Operational Costs Impacted by Both Staffing and Real Estate: Rising labor costs combined with increasing rent and construction expenses are placing a significant strain on healthcare practices. Many practices, especially smaller or independent ones, are facing tough decisions on how to manage their budgets without sacrificing patient care.

Addressing these challenges requires strategic planning and adaptability, including a focus on employee retention strategies, creative leasing arrangements, and possibly leveraging tele-health or hybrid care models to reduce space demands where possible.

The Ocean Company is a leading advisory to healthcare practices seeking facility negotiation and occupancy cost examination.

The Growing Demand for Medical Office Space: Key Insights for the Healthcare Industry

The healthcare real estate market is experiencing significant momentum as the delivery of healthcare continues to shift toward outpatient care. With an aging population and the rise of outpatient services, medical office spaces have become one of the most sought-after property types by both healthcare providers and investors. Let’s explore how these trends impact healthcare real estate, tips for leasing medical office space, and how occupancy costs might affect your practice.

Why Medical Office Space is in High Demand

The U.S. healthcare system is transforming, with more services moving out of hospitals and into outpatient settings. This shift is largely driven by an aging population—especially with the number of people over 80 expected to increase by 50% in the next decade—who require regular medical attention. According to the Laramar Group, this trend, along with higher insurance coverage and technological advances, continues to push demand for medical office buildings (MOBs).

In 2023, medical office construction reached new heights, with nearly 10.8 million square feet delivered nationwide, up from 10.3 million square feet in 2022. Major Midwest markets like Chicago, St. Louis, and Indianapolis are leading the charge in medical office space development and investment. As occupancy rates for medical properties remain stable—consistently above 90% since 2010—the sector has shown remarkable resilience, even as other office spaces face challenges from the remote work trend.

Tips for Leasing Medical Office Space

Leasing medical office space is a critical decision for healthcare practices. Here are some key considerations:

1. Location Matters: Proximity to patients is essential. Practices should consider locations near population centers, hospitals, and easily accessible transportation routes. Choosing the right location can help drive patient volume and ensure long-term success.

2. Space Design and Equipment Needs: Medical office spaces often require specific build-outs to accommodate exam rooms, diagnostic equipment, and patient flow. Make sure to account for these customizations when negotiating lease terms and timelines. Retrofitting standard office space into a medical office can be costly, so it’s best to work with a real estate agent experienced in healthcare properties.

3. Long-Term Lease Considerations: Unlike traditional office leases, healthcare providers tend to remain in the same location for extended periods due to the cost of moving specialized equipment and the importance of patient familiarity. A long-term lease can offer stability but should include provisions for expansions or modifications as your practice grows.

4. Understand the Market: Rental rates for medical office space continue to rise, with average net asking rents hitting a record $24.37 per square foot in 2023. In competitive markets like Chicago, where average rents are about $23 per square foot, it’s important to strike a balance between your budget and securing a prime location.

The Impact of Occupancy Costs on Healthcare Practices

Occupancy costs, including rent, utilities, and maintenance, represent a significant portion of a healthcare practice’s overhead. Rising construction costs and high demand for medical office space are putting upward pressure on rents. However, this expense can be mitigated by choosing the right lease structure and negotiating favorable terms. For example, landlords might offer rent abatement during the build-out phase or tenant improvement allowances to offset upfront costs.

Key Considerations for Managing Occupancy Costs:

• Lease Type: Gross leases, where the landlord covers all operating expenses, can provide more predictability for budgeting. On the other hand, triple-net (NNN) leases, where the tenant is responsible for taxes, insurance, and maintenance, offer more transparency on costs but could be riskier if property expenses spike.

• Space Efficiency: Ensure your medical office is the right size for your practice’s needs. Too much space can lead to unnecessary costs, while too little space may restrict growth. It’s critical to evaluate the layout and functionality of the office to avoid future disruptions.

• Energy Efficiency: Look for buildings with energy-efficient features or work with landlords to implement cost-saving upgrades like LED lighting or efficient HVAC systems. These can help reduce long-term utility expenses.

The Long-Term Outlook for Medical Office Real Estate

The outlook for medical office space remains strong, with healthcare services essential regardless of economic cycles. Healthcare expenditures as a percentage of GDP are projected to rise to 20% by 2030, and demographic trends—such as the growing number of insured individuals and the aging population—will continue to drive demand for medical services.

Despite the rising demand, new medical office construction starts dropped nearly 45% in 2023 due to rising borrowing and construction costs. This decline in new supply will likely keep vacancy rates low and maintain upward pressure on rents, creating a landlord-friendly market in many regions. For healthcare providers, this means locking in favorable lease terms sooner rather than later could be a smart move.

Conclusion: Investing in Healthcare Real Estate

Medical office buildings offer stability and growth potential for both healthcare providers and investors. Whether you are looking to lease, buy, or sell healthcare real estate, understanding market dynamics, construction trends, and occupancy costs will help position your practice or investment portfolio for long-term success. Healthcare real estate is a resilient asset class, driven by essential services and long-term demographic trends, making it a strategic choice for both providers and investors alike.

Key Takeaways:

• Medical office space is in high demand due to demographic changes and the shift toward outpatient care.

• Leasing considerations should focus on location, space design, and long-term growth potential.

• Rising occupancy costs can impact healthcare practices, so negotiating favorable lease terms and optimizing space usage is essential.

• The healthcare real estate market remains strong, offering stability in an ever-evolving economy.

As the healthcare industry continues to expand and evolve, staying informed about market trends and real estate opportunities will ensure you make sound, strategic decisions for your practice or investment.

Office Leasing in 2024: Is Now the Right Time to Secure Your Next Lease?

As we enter the final stretch of 2024, the office leasing market in Orange County is seeing increased activity, with 1.9 million square feet (msf) of office space leased in Q3 2024. This represents a 29.9% jump from the previous quarter, but is this spike a sign that now is the time for your business to secure its next lease?

Renewal Deals are Driving Growth

A key insight from Q3 2024 is that renewal deals are driving the leasing market. Many businesses are opting to stay in their current offices, with eight of the top 10 lease transactions coming from renewals. This trend points to a cautious market where expansion is on hold and companies are focusing on stability over growth.

Why Office Demand is Still Limited

Despite the increase in leasing activity, the demand for new office spaces remains relatively low. Many businesses are choosing to downsize their office footprints in response to the ongoing trend of remote and hybrid work. Companies are hesitant to take on new leases as they reassess their long-term space needs, leading to a “wait-and-see” approach that is keeping the market somewhat subdued.

What Tenants Need to Consider:

• Downsizing trends mean that availability for larger office spaces may increase in the future, but the current market is tight for new space.

• Leasing renewals are often negotiable, and with occupiers focused on maintaining their existing space, there’s room to secure favorable terms.

• Rental rates are creeping up slightly, but this offers an opportunity for businesses to lock in lower rates before further increases occur.

Is It the Right Time to Lease?

The key takeaway for tenants is that timing is everything. While the market is shifting and many occupiers are holding off on expansions, this could be an opportunity to secure a new lease at a competitive rate. If your business is growing or in need of a change, acting sooner rather than later might allow you to capitalize on current conditions before rental rates increase further.

The Ocean Company is Here to Help

If you’re considering a lease renewal or looking for new office space in Orange County or Los Angeles, The Ocean Company can guide you through the process. We specialize in tenant representation and can help you navigate this evolving market.

Contact us today to discuss your leasing options and find the best space for your business.