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Influx of Knowledge-Based Firms Boosts Development

Research Director

There are three things that make San Diego attractive to the people who live here: the surf, the sand, and the sun.

With the landscape and the weather, many high-tech and biotech companies are either forming in or relocating to the San Diego area, increasing the demand for office and industrial space locally. In 1999, companies on The List of the Largest Commercial Developers reportedly developed more than 5.31 million square feet of space for 28 projects in San Diego County. Three of the 12 commercial developers did not complete any projects that year.

“The real indicators for San Diego is the job creation, low unemployment and the increasing population for the region,” said Mark Read, senior managing director of CB Richard Ellis of San Diego County.

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In CB Richard Ellis’ San Diego Market Index Brief ending first quarter 2000, it was reported the San Diego economy created 196,000 new jobs in the past five years, with unemployment at a low of 3.1 percent at the end of 1999.

– Knowledge-Based

Firms Add To Growth

Read credited the growth of businesses in San Diego to “knowledge-based companies.” Most of these companies are in the high-tech and biotech industries, including the electronics, software and telecommunication companies.

“San Diego has extremely high numbers of college graduates and Ph.D.s living here,” Read said. “It’s simply to say smart people want to live in San Diego.”

San Diego is seen as a wonderful place to live with good weather and a pleasant environment, which attracted many companies to move here, according to Read.

Many of the industrial and office activities regarding construction and vacancies are concentrated in the central parts of San Diego County, Read said. Central San Diego County includes areas like Sorrento Valley, University Towne Centre and Torrey Pines.

“We’re seeing demand starting to outstrip supply,” Read said. “There’s a lot of new construction and lease rates are rising.”

– Development On

A Steady Course

Robert Lankford, president and CEO of Lankford & Associates, No. 6 on The List, sees steady growth in commercial development, not much more or less than in the previous year.

“There’s a lot of growth within the high-tech and biotech industries,” Lankford said. “There’s also special attention coming from companies outside the county.”

Lankford & Associates developed 310,000 square feet of land in 1999, valuing approximately $91 million. The Lankford’s total development in San Diego County accounts for 1.21 million square feet, valuing $275 million.

Recently, Lankford & Associates in a joint venture with Los Angeles-based Morgan Stanley Real Estate Fund, developed the 126-acre Scripps Northridge Corporate Center in the Interstate-15 corridor area. In the first nine major lots, two lots are being developed for Nokia, a Finland-based telecommunications provider, with one 189,000-square-foot building completed last year. The second 135,000-square-foot Nokia building is under construction.

“The Rancho Bernardo area has attracted significant amounts of high-tech companies like Hewlett-Packard and Sony for many years,” Lankford said. “For high-tech, the I-15 became an excellent spot for many companies due to its location in San Diego.”

He said many employees live nearby, particularly in the north and east parts of the county, and can easily travel to Sorrento Valley or I-15 corridor to go to work.

– Omni Center

Built Along I-15

Another recent commercial development along the I-15 corridor includes the Omni Center, a 105,000-square-foot industrial center in Sabre Springs built by Koll Development Co., No. 1 on The List. IPivot Inc., an Internet commerce equipment manufacturer, occupies nearly half of the facility at 43,300 square feet.

Despite the rapid growth in San Diego, the main concern is the shrinking supply of land in San Diego.

“We’re rapidly running out of land in the central part of San Diego,” Read said.

CB Richard Ellis’ Market Index Brief also reported the vacancy rate is 8.70 percent in Sorrento Valley, 4.60 percent in Torrey Pines/University Towne Centre areas, and 8.10 percent in Sorrento Mesa, at the end of its first quarter 2000 in March. The three areas combined for more than 23 million square feet in building space with almost another 500,000 square feet of building space under construction.

“The nucleus of tenants are located in central San Diego County,” Read said. “There are still inventory in the area, but the focus may shift elsewhere in the county.”

Read suggests commercial development will shift towards either North County or in the south near the border.

– Attractive Sites Up

North, Down South

Some of the attractive areas include Otay Mesa near the border, and Carlsbad and Vista in the northern part of the county. In the CB Richard Ellis Market Index Brief, vacancy rate in Otay Mesa is 7 percent, Carlsbad is 18.3 percent and Vista is 19.60 percent.

Lankford, on the other hand, sees the Downtown San Diego market as a potential opportunity for San Diego companies.

“It’s a wonderful place to be and there’ll be more business growth in that area,” he said. He said many parts of Downtown San Diego are currently being redeveloped. The development includes more high-rise buildings and parking garages for the area.

However, the problem of insufficient land availability in San Diego will also be a problem for residential development, Read said.

– Lack Of Space

For New Homes

“The big issue will definitely be with affordable housing on all levels,” he said. “There’ll be a crunch in lack of housing, which may be equal to, or more severe than, the demand for employment land.”

Lankford agreed.

“There’ll be a need to sprawl elsewhere for land,” Lankford said.

However, he said people and employers are willing to pay more to live and do business in San Diego.

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