Like many types of office tenants, law firms have been able to drive hard bargains with their landlords since 2008. And according to a recent national report by the brokerage firm Jones Lang LaSalle, that tenant-favored tilt is likely to continue for at least another 18 to 24 months in most major cities, including San Diego.
A key factor going forward, however, is how eager law firms will be to expand or relocate. So far in 2012, according to JLL, law firm leasing activity in San Diego has declined 22.2 percent from 2011, following a 46.9 percent drop last year. Just a few firms have been scouting for new local space this year, as law firms now comprise just 15 percent of active tenants in the market.
Meanwhile, notes JLL Senior Managing Director Bill Fleck, submarkets like downtown have large amounts of competitively priced space available, following a wave of office space downsizings. The inventory of desirable law firm space in suburban markets, including sublease space, could be growing in coming months thanks to lease rollovers and continued down-shifting in square-footage requirements.
“While employment levels have held steady lately, some firms continue to right-size their office space, and other firms may be able to backfill existing law firm space at a discount,” said Misty Moore, a vice president in JLL’s San Diego office.
Law firms currently occupy 20.9 percent of the local region’s Class A office space, primarily in downtown, Del Mar Heights, University Towne Centre and Mission Valley.
In the San Diego market, law firms have seen Class A asking rents rise 2.6 percent in the past year, to an average $32.40 per square foot, and the premium for the top trophy space is 10 percent. However, the average discount for negotiated rent is 5 percent, and the discount for sublease space is 30 percent.
While smaller firms have ample location choices, JLL notes that larger users seeking Class A space must opt for build-to-suit development or otherwise work within the constraints of the available supply amid scarce new construction.
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Apartments Debut at Barrio Logan: The first piece of a long-discussed mixed-use development in San Diego’s Barrio Logan neighborhood is now in place. Developer Chelsea Investment Corp. of Carlsbad recently opened its newly built 92-unit affordable housing complex, a $43 million project financed in part by the San Diego Housing Commission.
The Estrella del Mercado Apartments, located off Cesar E. Chavez Parkway between National Avenue and Main Street near Chicano Park, will provide much of the customer base for other elements of the larger Mercado del Barrio. The mixed-use project, being planned by the city and several developers, is set to include a Hispanic-themed Northgate Gonzalez Market, 48,000 square feet of additional space for stores and restaurants, and a community theater.
The housing commission invested $7.11 million to acquire the land for the apartments, and provided a loan toward development. Officials said the housing commission will have an option to buy the apartments after a 15-year tax-credit compliance period.
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Local Retail REIT Goes Shopping: Retail Opportunity Investments Corp. moved its headquarters from suburban New York to San Diego earlier this year. Now it is moving to build up its portfolio of shopping centers.
The REIT recently confirmed that it acquired the Bay Plaza retail center in National City for approximately $21.5 million. The seller was Irvine-based Pacific Castle Inc., according to CoStar Group.
The two-building center, located at 1420-1430 E. Plaza Blvd., was 88 percent occupied at the time of sale. The 73,025-square-foot center has 36 tenants, including Big Lots, Jo-Ann Fabric and Seafood City. Broker Reza Investment Group Inc. represented the seller, and ROIC represented itself in the transaction.
Retail Opportunity Investments Corp., which trades as ROIC on the Nasdaq stock exchange, owns more than 40 shopping centers nationwide, totaling more than 4.3 million square feet. The REIT said in a statement that it has purchased 10 shopping centers totaling $156.2 million so far this year, and has binding contracts to acquire three centers in separate transactions for a total of $58 million.
Those include a contract to acquire the 38,000-square-foot Bernardo Heights Plaza in Rancho Bernardo for $12.4 million. That center is anchored by Sprouts Farmers Market and is 100 percent leased, the company said.
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Beverly Hills Apartment Buyer Makes Local Entrance: Triumph Properties Group of Beverly Hills has acquired the 163-unit Villa Real Apartments in Carlsbad for $20.1 million. It is the first San Diego County purchase by the family owned investment and development company, which owns more than 1,350 multifamily units throughout Southern California and has acquired $50 million in assets during 2012.
Noah Hochman, the investment firm’s vice president of acquisitions and dispositions, said the Carlsbad property was acquired from San Diego-based receiver Douglas Wilson Cos. The 14-building community, built in 1979, is located on 10.5 acres at 2701 Avenida de Anita.
Send commercial real estate and development news of general local interest to Lou Hirsh via email at firstname.lastname@example.org. He can be reached at 858-277-8904.