78.2 F
San Diego
Tuesday, Sep 26, 2023

South County in Midst of Development Boom

South County is in the midst of an economic boom that shows no signs of easing, although rising interest rates have caused a few jitters.

“It’s somewhat amazing what’s happening,” said Alan Nevin, director of economic and market research for Xpera Group.

By far the biggest project in the works is the $1.35 billion Chula Vista Bayfront project.

The project is slated to include a 1,600-room hotel and a 275,000-square-foot convention center to be operated by Gaylord Hotels and built by the Port of San Diego, the City of Chula Vista and RIDA Chula Vista.

With financing documents approved by the Port and Chula Vista in mid-May, the first stages of the project could be under construction in a matter of weeks.

- Advertisement -

“I can’t wait for the next milestone,” said Ann Moore, who represents Chula Vista on the board of port commissioners.

In the making for more than 20 years, Moore said the Bayfront project would create 4,000 permanent jobs.

The Bayfront project “puts more eyes on Chula Vista and South County,” said Kevin Mulhern, a senior vice president with CBRE, a commercial real estate brokerage.

“It’s going to bring a lot more tourism and people into the area and that’s always good for the local economy. It gets companies interested in going down there,” Mulhern said. “The Bayfront development adds to the feeling of identity.”


At the same time, the industrial market in Otay Mesa is hotter than ever, with new warehouses in many cases being snapped up before they’re even finished.

Demand for industrial space in Otay Mesa is so fierce that some brokers said it’s become almost like the county’s housing market with multiple tenants lining up to submit offers.

“It’s become very competitive,” said Linda Greenberg, a principal at Lee & Associates, a commercial real estate brokerage.

“Everybody and their mother is building a building in Otay and their grandmothers are building a building. It’s on fire,” Greenberg said. “We have developable land at relatively low prices.”

According to Lee &Associates;, six industrial buildings were under construction through April and nearly 60% of the space that they represent had been preleased.


Joe Anderson, a managing director of the commercial brokerage JLL, said that South County benefits from a countywide shortage of industrial space in blocks of more than 50,000 square feet.

In the traditional industrial submarkets of Kearny Mesa and Mira Mesa, “there are zero options,” Anderson said. “That’s brought a lot of tenant demand to South County, where there actually is inventory.”

Even so, Anderson said that there’s little left that’s immediately available.


“I can count four options over 50,000 square feet that tenants can move into between now and the end of the year.”

In a first, Anderson said that South County is attracting tenants from outside of San Diego County.


“We’ve got five or six companies that have leased in the last six months in Otay Mesa that have migrated from Los Angeles or Long Beach,” Anderson said.

Kaitlin Aquino, president of Murphy Development, which is developing Brown Field Technology Park, said that she’s betting that demand for industrial property in Otay Mesa will remain strong.

Aquino said that Murphy Development this summer will start construction of two buildings on spec totaling 204,000 square feet.

“We believe in the market,” Aquino said. “We don’t see it stopping.”

Industrial Rates Up 33%

Industrial rental rates in Otay Mesa have increased 33% over the past year, but they’re still well below rates in other Southern California markets, Anderson said.

“The other demand driver that’s really there in a big way is defense companies related to the shipyards,” Anderson said. “We’re seeing an uptick in demand for defense companies looking for space closer to the shipyards and there’s very little inventory to lease along the (Interstate) 5.”

South County in recent years also has developed the infrastructure to support a strong industrial development. “There’s a robust transportation system,” Greenberg said.

Amazon has been among the biggest industrial investors in South County, with more than four million square feet of warehouse space built, under construction or planned.

To put that in perspective, Nevin said that four million square feet “is typically what we would build in an entire year in the whole county.”

“Almost every corner down there has major construction under way,” Nevin added. “You can figure two to three jobs per 1,000 square feet, so you can see thousands of jobs that are materializing.”

Waiting in the wings on the office side is Lee Chesnut’s life science project that he has dubbed Think, the first phase of a life science campus that Chestnut hopes to build in Chula Vista.

Many look at Spark as the potential catalyst to fill the missing piece in South County – jobs for all those settling into the new homes and apartments.

“If he can get that that first building built, there will be an ‘aha moment’ in the region,” said Guy Asaro, president of Meridian Development.

Dynamic Market

South County also is the hottest place for new housing construction in San Diego County, offering new homes, townhomes and condominiums at prices middle income families can afford.


“It’s just remarkable to see what’s going on,” Nevin said.

Residential development in South County “will continue moving forward at a very dependable pace,” Nevin said. “It won’t be as wild as last year but it is the only place where you can get a rationally price home. If you go down the (Interstate) 905, you can still get townhomes, nice townhomes, in the $400,000 range.”

Tripointe Homes is wrapping up construction of townhome projects in Otay Mesa with more to come, said Jimmy Ayala, division president of Tripointe Homes.

“We’re working on a 5,000-home master planned community on the southwest corner of Otay Mesa,” Ayala said.

The development will include a mix of townhomes and single-family homes, Ayala said.


“The Otay Mesa community as a whole is probably the most dynamic community in all of San Diego County.”

Rising interest rates could slow construction of new housing in South County, but not stop it.

“It could affect future building for the pace. We’ll still building them, but at different pace,” Ayala said. “I think we have a little bit of a headwind right now with mortgage interest rates and recovering from a pandemic and a war in Europe that’s affecting the supply chain a little but I feel strongly that housing in South County is going to remain strong because we continue to create jobs, it’s an attractive place to live, and there’s a very limited supply of homes.”


Just as South County provides more affordable homes for sale, so too has it become a place where renters can find apartments to lease at lower rents, said Darcy Miramontes, managing director of capital markets for JLL.

“South County is one of the few markets where developers have built mid-tier apartments, and that’s a good thing,” Miramontes said.

“The submarket actually accounts for the majority of the mid-tier inventory in San Diego for the past five years.”

Miramontes said that South County in the last five years has led San Diego County in the construction of new apartment projects to the point that South County accounts for 6.5% of the total inventory countywide.

As with industrial projects, the demand for rental apartments in South County has been insatiable.

As of mid-May, Miramontes said that the vacancy rate had dropped to 1.3%.

“Historically, there was a large minority of (apartment) investors that didn’t want to invest in South County because it was seen largely as an outlying suburban market too far from job centers,” Miramontes said, adding that the image is changing.

Among those leading the way in South County residential development are Meridian Development, which is edging close to finishing Millenia, a mixed-use development in Chula Vista with 2,700 apartments and for-sale homes, a 130,000-square-foot shopping center, and a hotel.

Millenia includes two affordable housing complexes of about 200 apartments each being built by Chelsea Investment Corp.

“South County has strong demand and, unlike many suburban areas of the county, it still has inventory through the master plans that are in place. It’s got entitled lots,” Asaro said. “I think it’s going to enjoy a disproportionate amount of absorption relative to the county because the demand is strong and we’ve got supply.”

Kent Aden, president of HomeFed Communities, said he’s noticed increased interest in rental apartments in South County.

HomeFed has several for-sale and rental projects under construction In South County.

“We used to look at apartments as feeder home for new home buyers,” Aden said. “The market’s changed to where we’re seeing a cross section of all kinds of renters including people who could afford to buy but don’t.”

Aden said the big challenge for South County “is the ability to get some employers down there and actually provide jobs where people live.” Attracting major employers “would complete the picture there,” he said.


Downtown Chula Vista has drawn developers for infill apartment projects as the city pushes to revitalize Third Avenue.

“There are a number of smaller and mid-sized deals that continue to be developed in the older area of town,” Mulhern said. “That market is very strong and very desirable, but it’s a very different type of tenant, different type of unit.”

Compared to Otay Mesa and Otay Ranch where much of the development has been focused on young families, downtown Chula Vista, much like downtown San Diego, has been focused on housing for young professionals.

On the retail side, the problem is that there’s not enough existing product available to lease in South County and little new construction in the works, said Craig Killman, executive vice president and lead retail advisor of JLL.

“I have tenants that are interested in being in Otay Ranch and Eastlake and I’m having a difficult time find them homes,” Killman said.

The same holds true in Imperial Beach, Chula Vista and National City.

Killman said finding retail space in National City along Plaza Boulevard and National Avenue is especially difficult.

Chula Vista has become popular among retailers because of they see the redevelopment that the city’s undergone in its downtown core.

“The older retailers on 3rd Avenue are doing well,” Killman said.

An artist rendering of the Bayfront Project. Courtesy Port of San Diego 


Featured Articles

Crinetics Stock Soars on Study Results

OSS Showcases Defense Tech on Global Stage

UniverCity Breaks Ground in Millenia Community


Related Articles