Western Real Estate Business

SEP 2017

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

Issue link: https://westernrealestatebusiness.epubxp.com/i/873170

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Page 42 of 80

M A R K E T H I G H L I G H T: S A N D I E G O 42 • September 2017 • Western Real Estate Business www.REBusinessOnline.com The San Diego office market remains very tight as leasing activity stays strong throughout the region. This con- tinues to drive asking rates to all-time highs, particularly in Downtown and Central San Diego. In the latter, aver- age asking rents have been more than $3 per square foot for three consecu- tive quarters, an unprecedented level. With limited supply and relatively low construction activity on the horizon, continued upward pressure on rents is expected. There are, of course, limits to growth in any market, so job growth will have to continue to sustain the recent high demand. Job growth has recently started to slow compared to recent months as we reach nearly full employment, but remains around 2 percent year-over-year for office us- ers. Until this drops more significantly, tenant demand should remain strong. Tenants are demanding more ame- nities and higher-end design from the lobby to the occupied spaces, driving landlords to invest heavily in their properties. This is especially true out- side of Downtown and UTC, where suburban buildings and campuses strive to offer urban-type amenities with dining, fitness and lounge spac- es. New developments and major re- developments outside of Downtown and UTC, like Ampersand in Mission Valley, are heavily focused on creat- ing a high-end experience for tenants with indoor/outdoor spaces that ac- centuate a corporate campus in San Diego's envious climate. Throughout the county, several buildings are or recently have experienced overhauls to their lobbies and common areas, focusing on a more concierge-like ex- perience. As the tech industry contin- ues to grow Downtown, owners are capitalizing on upgraded common areas, strong design, and leveraging the burgeoning residential and retail neighborhoods. UTC remains an interesting submar- ket to watch, as rates remain above other Central submarkets, but large availabilities linger. Nearly 20 percent of the submarket is available, with more than 10 percent directly vacant, mostly in older product. Neverthe- less, the best product in the market is leasing well , and we expect some big announcements about strong leasing activity in the third quarter. The forth- coming trolley extension, which will connect UTC to UC San Diego cam- pus, Mission Valley and Downtown, could increase the attractiveness of the submarket, especially for tech ten- ants. Westfield is making a significant investment to modernize the Westfield UTC shopping center, which will add attractive entertainment, shopping and dining elements to the area. Mul- tifamily is on the rise as well, and the submarket is starting to evolve into a much denser urban center. These tight market conditions are driving some owners to look at their exit options. An increase in for-sale of- fice listings has been evident with at least 15 properties in San Diego hit- ting the market so far this year. This includes buildings in Downtown, Sor- rento Mesa, Mission Valley and Kear- ny Mesa. Record-high lease rates and vacancy rates at post-recession lows present strong market conditions for owners that may take the opportu- nity to exit. Owners may also want to capitalize on an influx of capital from foreign investors that are targeting Southern California. The lending en- vironment also remains attractive and busy, augmenting a solid buyer pool, whether foreign or domestic. Year-to- date, 10 sales of more than $10 mil- lion have transacted. An additional 17 were on the market or in escrow at the end of the second quarter. As the sec- ond half of the year gets underway, it will be interesting to see where these properties trade, and at what cap rate. SAN DIEGO'S OFFICE MARKET HEATS UP, BUT OWNERS MAY LOOK FOR EXITS Matthew Carlson Senior Vice President, CBRE The former San Diego Union Tribune building in Mission Valley is being converted into a two-building, 330,000-square-foot creative office center called Ampersand. The newly renovated and rebranded Ampersand is a two-building complex at Interstate 8 and State Route 163 in the San Diego submarket of Mission Valley. W H A T ' S B U G G I N ' Y O U ? Pest Control for Professionally Managed Properties OFFICE RETAIL INDUSTRIAL RESIDENTIAL Eco-Friendly Solutions | Serving Southern California Pest Control Pigeon Control Termite Control Rodent Control Bee Control Gopher Control 1.877.522.2377 | www.AccessExt.com

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