Bret Schanzenbach
President & CEO
Carlsbad Chamber of Commerce
In late January, the San Diego North Economic Development Council hosted a panel discussion about the future of commercial real estate in San Diego North County post COVID-19. And while no one has a perfect crystal ball, the discussion was quite interesting. As you might guess, the tale of commercial real estate is vastly different for our “industrial space” as compared to “office space”.
Industrial space is clicking along at a very health clip. The five cities along the 78-corridor have 60M sq. ft. of industrial space and currently only have a vacancy rate of 6%. That is extremely low. One of the panelists shared that Carlsbad had the highest net absorption of industrial space in 2020 with 533,000 sq. ft. being absorbed. With Covid pushing all consumers to more e-commerce than ever before, we are seeing more and more distribution centers popping up in our area. Amazon grabbed a 200,000 sq. ft. building in the Vista business park just two years ago and now is leasing another 100,000 sq. ft. building in Carlsbad. The “essential” nature of our business park businesses helped them stay mostly immune to the slings and arrows of outrageous fortune that Covid leveled on business in general in 2020.
While industrial space was mostly unfazed by the pandemic, the same cannot be said for office space. Eric Northbrook, the Managing Director for Voit Real Estate Services shared that countywide, the vacancy rate for office space is 13%, and in Carlsbad, that rate is over 15%. Northbrook reported that pre-pandemic, 30% of the workforce worked from home at least part time. However, now that we are all Zoom and/or Teams proficient, that number is expected to stay much higher over the next decade. The question becomes, in 2022 and beyond, do we think people are going to drive 45-60 minutes, just to sit in a large office building with all their co-workers, do their work, and then drive home again? Northbrook talked about a new post-pandemic trend for office space called “office pods.” Rather than tenants leasing large office buildings and forcing every employee to commute to that one site, instead have multiple small office pods that are decentralized, smaller square footage but connected and more convenient. Northbrook sees Carlsbad’s office market as perfectly situated for that emerging possibility, as he stated, “Carlsbad is going to thrive in that environment.”
Office space trends toward these pods will take time, as companies evaluate their situations when current leases expire. However, Northbrook noted that, “currently, companies are not making any long-term commitments when their leases expire. They are only making short-term decisions to evaluate what their needs truly are.” The shift is definitely afoot.
Big picture will this trend be one of the silver linings of the whole coronavirus? Possibly. Decentralizing the “office” experience will mean much less commuting. Less commuting is good for employee health and mental well-being, family dynamics, freeway infrastructure wear-and-tear, and our air quality. There will be other ripple effects from this trend as well. Public transportation usage is also down due to the pandemic. For those still driving to work, if the traffic is less, will they be less apt to gravitate toward public transportation? We do love our cars and our autonomy in So. Cal. But if we are all putting less miles on our vehicles as we go to our pods instead of to a centralized office, will we need to upgrade our cars as often? Or repair/service them as often? That all could result in less car crashes as well – less auto body work.
Ten years from now MBA students will be analyzing all the butterfly effects from COVID-19. Personally, I am excited about the office pod concept. Not only do I think it will be a better paradigm for office working, but it will be better for all of North County. Since the 1980’s, North County has been shedding its bedroom community identity and growing as a center for industry, but we still have a healthy number of commuters.
I say, let’s reduce the commute, embrace the pod, breathe the fresh air and enjoy our extra time.