The La Jolla Commons Office Tower , a $100 million-plus project that broke ground Nov. 15 in the University Towne Center area , is going to shake up this prime sub-market in San Diego.
That’s the prediction of Dave Odmark, local principal of Grubb & Ellis BRE, who is handling leasing for the Class A, 15-story tower , the first high-rise to be built in the UTC area in years.
“La Commons will be a dynamic nobody’s seen since 1990,” said Odmark. “By far, it will have the highest rent in the entire market , and in the county.”
According to CB Richard Ellis, while San Diego County reported an average monthly asking rate of $2.33 a square foot, the UTC sub-market commanded $3.13.
But the 345,000-square-foot La Jolla Commons project will command rents of $4 to $4.25 a square foot, not including utilities, said Odmark.
“It’s not for everybody,” he admitted. “It’s for people who want to be in the nicest high-rise building in the county.”
The project is a joint venture of Houston-based Hines, an international real estate firm whose local credits include Petco Park, and TIAA-CREF financial services, and no expense is being spared. Bordered by La Jolla Village Drive, Executive Drive and the 805 freeway, the tower is scheduled for completion in April 2008.
Hines purchased the site from Newport Beach developer Makar Properties LLC, which is planning to build the hotel and condo components on the site as part of the master-planned campus.
“They are on a simultaneous track, and an announcement for the hotel is imminent,” said Paul Twardowski, vice president of Hines’ San Diego office.
Noted architect Paul Danna, a principal of Los Angeles-based DMJM Design, crafted the office tower to be a “landmark of crisp modernism,” according to Hines, and it also has been pre-certified as an energy-efficient building by the U.S. Green Building Council.
Asking Versus Getting
While few seem to dispute the tower’s quality, the big question remains: Is there a solid market for this type of prestige product , even in tony UTC?
Hines President Jeff Hines, who traveled to San Diego for the Nov. 15 groundbreaking, said he continues to be bullish on the region.
“We have been made the judgment that San Diego is a place we want to be long-term,” he said.
UTC’s demographics, with its prestigious educational institutions turning out top talent, also spells a strong long-term market, said Twardowski.
But will it be strong enough to attract tenants willing to pay those rates?
“What they ask and what they get might be different,” said Stephen J. Holland, vice president of global corporate services for CB Richard Ellis in San Diego.
Asking rates of $4 to $4.25, plus utilities, he said, is an “envelope that hasn’t been pressed before.”
“Tenants are really going to start questioning if they can afford that kind of space,” he added.
What’s more likely is that rates will reflect the equally desirable Del Mar Heights market of $3.60 to $3.80 a square foot, excluding utilities, he said.
But Twardowski disagreed.
“The feedback we are getting from the market for this building is that the rates are reasonable,” he said.
While the vacancy rate in UTC is 10 percent, the so-called availability rate, which takes into account sublease space, is closer to 17 percent, said Holland.
“It will be competitive among landlords for sure,” he said.
But, he added, the La Jolla Commons project is a “different animal.”
“It’s a high-end, Class A office building that has not been built in UTC in quite some time,” said Holland.
But Holland, who represents tenants, wonders if there will be enough demand to satisfy the market.
“It remains to be seen if tenants will pony up $4 for office space,” he said.
But that’s already happening, said Patrick Quinn, senior vice president in the La Jolla office of Lee & Associates, a Newport Beach commercial brokerage.
“Tenants already have the upper hand in the market,” he said. “It seems like every building has space available.”
The landlords of Class A, he added, however, “do appear to be holding firm on rates for the most part.”
“There are only so many Class A landlords in this market,” Quinn said.
How well office products fare often depends on job growth, but Russ Valone, president of MarketPointe Realty Advisors in San Diego, is optimistic.
“The economy and the market is in one of those schizophrenic states,” he said. “There is not a lot of rhyme or reason to what’s going on but I don’t see any major job loss.”
Bridging The Gap
The UTC sub-market, also known as the Golden Triangle, is bounded by Interstates 5 and 805 and state Route 52, and located some 10 miles north of downtown San Diego. The upscale neighborhood is home to a mix of biotech, technical, financial, educational and commercial companies.
The sub-market includes the Eastgate Mall, an office campus that is home to the Bridge Pointe Corporate Centre, which on Nov. 15 saw the completion of its $36 million third phase , two buildings totaling 50,000 square feet of Class A office space. Leasing agents now are meeting with potential tenants, said Liza Strom, leasing director for Equity Office in San Diego.
Equity bills itself as the largest owner of office property in the UTC sub-market, with a portfolio that includes Nobel Corporate Plaza, Park Plaza, La Jolla Executive Tower, La Jolla Centre I and II, and the Plaza at La Jolla Village, totaling almost 2.2 million square feet.
The Eastgate Mall is considered a micro-market within the greater UTC area, specializing in corporate headquarter, campus-type products, said Strom.
“We are catering to large corporate users, who tend to be very employee focused, and want to offer a very enticing setting to employees,” she said, noting such amenities as volleyball and basketball courts, as well as free surface parking.
Asking rents are $2.75 per square foot per month for what Strom described as “a very high-end product type,” sporting such Class A features as steel, reinforced concrete and granite.
With an additional 500,000 square feet planned in UTC, as well as Equity’s existing Centerside II building in Mission Valley, the company is high on San Diego, said Strom.
“San Diego is a great place to be an owner,” she said. “We are very optimistic about where the market is headed.”