After an extended period going through a down market, it can be a very difficult guessing game to spot when the rebound actually starts – and even harder to tailor your strategies to take maximum advantage of the shifting market dynamics.

It’s important to keep in mind that landlords are also closely watching for signs of the rebound and are adjusting their negotiating positions to take advantage of any pricing leverage that might result from an upward trend in demand. Some landlords are reluctant to do early lease renewals for tenants that have lease expirations in 2013 because they are betting the market will continue improving. For instance, landlords in Palo Alto have started to slowly raise rents as that market rebounds. A recent article on WSJ can be found here. Are we following?

In reality, there won’t be a clear “starting bell” to signal the rebound and it won’t be an easily discernable across-the-board upswing. For an inherently segmented market like San Diego, the rebound will happen at various speeds across various regions. In some areas, it has already started and in others it may be a while.

Of the eight sub-markets in San Diego County, two or three are still pretty bleak while a few others are definitely showing signs of renewed activity. For example, rates are slowly rising in Del Mar and Rancho Bernardo for Class A space in larger blocks. In most other regions, vacancy rates have been stagnate or slowly decreasing and rental rates and concession packages for tenants have not moved in the past few quarters.

The market is also segmented by size and tenant requirements. Large blocks of space over 40,000 sq. ft. are becoming limited while the market for smaller space still tends to be lagging. In any market, the good stuff goes first; which means that Class A properties, well located at bargain prices are already getting slim. The good news is, for prospective tenants with some flexibility, this can present real opportunities. For example, the number of options in the Central San Diego market for 40,000 sq. ft. Class A space are down to about 4-6 options however class B still has about 20 options available. Bottom line, there are excellent opportunities to drive good deals for class B space.

While it is still hard to tell if the market is truly in a rebound or if we are in a double dip, it’s clear that key shifts are taking place. One thing is for sure, the prime space is slowly drying up. For those who want a Ferrari at a Pinto price, the available options will only last for so long. Class B space on the other hand still has a long way to go.

The good news is that most of the corporate downsizing is complete and the market bottom appears to be behind us. While companies are slowly beginning to hire, it will just take time for across-the-board market demand to gain traction. In the meantime, companies that have flexibility with regard to space size, amenities, location, etc. have a great opportunity to target the soft-spots in this shifting market and to lock in an excellent long-term deal before the rebound hits full stride.