RAF Pacifica Group, one of North County’s most prolific commercial real estate builders, is capitalizing on soaring demand for office space as rents are reaching an all-time high.
Led by Adam Robinson as company president, RAF Pacifica has acquired a Carlsbad office building for $20.2 million with plans to renovate it into a combination office/industrial structure.
Built in 1996 on a 10.9-acre site as a distribution center which was later converted to a call center, RAF Pacifica’s latest acquisition is a 121,541 square-foot office building at 1950 Camino Vida Roble previously called Axis 1950.
Renamed fus*sion, “We’re going to gut the building and start fresh,” Robinson said.
That will include adding a new façade and removing a truck court.
“We’re going to convert it into an amazing amenity area,” Robinson said.
Because the site is so big, there’s plenty of room to play with and still have more parking than most other office buildings, Robinson said.
Among the amenities RAF Pacifica plans to add are a full basketball court, a bocce ball court, a sand volleyball court, an outdoor amphitheater for up to 250 people, covered and uncovered outdoor seating and dining areas, a fire pit, barbecue grills, hammock space, a wall mural and drought-resistant landscaping.
“That’s what employees want so now employers want those same amenities in their buildings,” Robinson said. “We’re trying to take it to that next level of amenities that they’re not even thinking of yet.”
Robinson said he expects to spend about as much on renovations as he did to buy the building.
“We’re a long-term mentality. We’re not trying to save money and cut costs,” Robinson said. “We’re willing to make it a little bit nicer than if someone was just going to flip the building for a profit. We want to hold it long term and we want the improvements to hold up.”
Aric Starck, an executive managing director of the brokerage firm Cushman & Wakefield, said RAF Pacifica’s fu*sion follows an overall pattern that the company used on its recently completed “lift” office building in Carlsbad — a ground-up project of 60,000 square feet with outdoor conference rooms, fire pits and a dog run.
Finished a month ago, the building is fully leased, said Starck, who is handling leasing on fu*sion.
“We’re seeing on all the projects that we’re selling or redeveloping or repositioning, they all have this outdoor amenity area,” Starck said.
Creative Office Space
The market for creative office space with an abundance of amenities such as RAF Pacifica provides is especially strong, said Chris Baumgart, a senior vice president of the commercial real estate brokerage JLL.
For the second quarter of 2019, JLL reported that the office market in San Diego County “hit a new high with overall average sales price per square foot at (a) record high.”
“Since the start of 2018, there have been 10 sales over $100 million signaling investor confidence in an office market that typically sees two to three deals that size per year,” JLL reported.
Rents also are on the rise, increasing 3.4 percent since the end of 2018 to a county-wide average of $3.08 per square foot at the end of the second quarter of 2019, according to JLL.
Steven Field, a senior vice president of JLL, said everyone “from institutional investors to your mom and pop sort of players” have been active in the office market.
‘Peak Rents in Creative Office’
“We’re seeing a lot of tenant demand in kind of the tech world,” Field said. “We’ve seen peak rents in creative office.”
RAF Pacifica’s latest project is a perfect example of the type of project that is catching on.
“They’ve certain gotten a successful track record up here in North County,” Field said. “I anticipate the product that they deliver is going to be very well designed and well received by the marketplace.”
Baumgart said along with a rise in sales, building owners also have been investing in renovating their property.
“That’s a good sign of owners being optimistic and the continued health of the office market,” Baumgart said.
Matt Pourcho, a senior vice president of CBRE, said RAF Pacifica’s Carlsbad acquisitions are indicative of strong investor interest in the city.
“Carlsbad is where the value is in San Diego,” Pourcho said.
The majority of those investing in Carlsbad commercial real estate are from Los Angeles, Pourcho said.
“Those types of buyers like the nicer, cleaner product that Carlsbad offers,” Pourcho said.
Carlsbad has one of the highest vacancy rates in San Diego County for office space, but that’s because there’s more property available.
“There’s just been more development and building up there,” Pourcho said. “It’s just had more land, that’s why you see higher vacancy rates. It’s not that it’s a worse economy. It still remains healthy.”
JLL projected that “the outlook is positive” for the office market with the highest number of companies in the market for office space in the last three years.
11.6% Vacancy Rate
“Despite a few redevelopment projects being delivered vacant in Q2 (second quarter), the market has showcased its resilience with vacancy remaining stable over the last three quarters at 11.6 percent, a 10-year low,” JLL reported.
Pourcho of CBRE said he expects the office market to remain strong through 2019 and into 2020.
“Look at our unemployment rate. That’s continuing to help things,” Pourcho said.
“Phenomenal,” is how Pourcho described the demand for office space in San Diego County in general, with especially strong interest from tech companies looking to relocate from the San Francisco area.
“If you look at the lifestyle San Diego offers compared to San Francisco, it’s substantially greater,” Pourcho said.
For one thing, housing is far less expensive in San Diego, Pourcho said, adding, “That’s a major driving factor.”
The one caution Pourcho had was a possible change in federal tax policies.
“The office market is directly correlated to tax incentives,” Pourcho said.
If those are changed, it could put a damper on the market in San Diego and elsewhere, Pourcho said.