The past year saw downtown San Diego’s largest office high-rises reverse six years of flat or negative occupancy trends, as renewed investor activity and an influx of new tenants signaled noticeable recovery in the city’s central business district, according to a report by the brokerage firm Jones Lang LaSalle.
Bess Wakeman, executive vice president in the San Diego office of JLL, noted that downtown’s 20 largest office towers — deemed collectively by the brokerage firm as the Skyline 20 — posted 106,000 square feet of positive net absorption in 2012, up from just over 5,100 square feet in 2011. It was the top 20’s best absorption since 2004.
Wakeman said the top 20 towers were the biggest beneficiaries of a downtown market that is gradually diversifying its customer base, with stalwart government, legal and financial services tenants being joined by those involved in education, engineering and technology.
The improving climate is also likely to spur more purchases of large downtown towers in coming months, after three big properties changed hands in 2012: DiamondView Tower, Columbia Center and 600 B Street. The local market previously saw no investment sales take place among the Skyline 20 for three straight years, before 450 B Street and 110 Plaza got new owners in 2011.
As rents rise and competitive incentives become less of a factor than they were during the recession, the downtown market likely will become more attractive to investors.
“There are some investors looking to sell and deploy their assets elsewhere, and others looking to establish or increase their presence downtown,” Wakeman said.
JLL notes that the Skyline 20 continues to drive the overall downtown market, accounting for 75 percent of all downtown leasing deals signed over the past three years.
Six of the Skyline 20 are currently owned by the region’s largest office landlord, Newport Beach-based Irvine Co. That includes downtown’s tallest tower and its biggest in square footage, One America Plaza on West Broadway, which is approximately 94 percent leased.
“It’s generally a good sign when other owners besides us are also starting to do well in the downtown market,” said John Turner, a San Diego regional vice president with Irvine Co. “It’s not just us anymore.”
Turner said Irvine Co. has recently seen a steady influx of small technology firms, many of them software-related, looking to co-locate in downtown buildings adjacent to other firms in complementary industries and companies. The landlord was able to accommodate several early-stage firms that now share a large office suite at One America Plaza.