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Technology Tenants’ Space Demands Lead to Upgrades

Spurred in part by rising local space demand among technology firms, owner Beacon Capital Partners LLC has long-range plans in the works that could nearly triple the square footage of San Diego Tech Center in Sorrento Mesa, already among the region’s largest office campuses.

The Boston-based company purchased the 38-acre, 10-building complex earlier this year for $152.5 million, from sellers MPG Office Trust Inc. of Los Angeles and Charter Hall Office REIT of Australia. The campus houses several national and global high-tech tenants, led in square footage by Sony Computer Entertainment America LLC and Novatel Wireless Inc.

Wireless giant Qualcomm Inc., which has operations throughout Sorrento Mesa and surrounding submarkets, recently moved to significantly grow its leasing footprint at the Tech Center, going from 10,000 to approximately 74,000 square feet.

According to brokers at Jones Lang LaSalle, which handles the office park’s leasing, Beacon Capital plans to spend an additional $3.5 million in the coming 12 months on a renovation of the campus’ fitness center, common areas and other amenities. That will be a prelude to a potential four phases of new construction, which over the next several years could add approximately 1.2 million square feet to the Tech Center’s current 650,000 square feet.

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Beacon recently obtained city approvals for a first phase of construction, calling for a 12-story, 342,000-square-foot office tower. However, JLL representatives noted that the project won’t be moving forward until Beacon has lined up tenants to fill the spaces, most likely via build-to-suit arrangements.

“There’s currently still not a lot of spec building going on in the local market,” said Tim Olson, a vice president in the San Diego office of Jones Lang LaSalle.

Prime Tech Territory

Optimism among tech office landlords has been spurred by continued growth in demand for space among technology tenants, particularly those looking to be near Qualcomm in the burgeoning mobile technology sector. Wireless and other technologies geared to health care monitoring are also spurring space demand.

According to recent JLL data, technology firms have accounted for 16 percent of local Class A and B office space leased so far in 2012, representing the largest chunk of the approximately 4.7 million total square feet of new leasing this year. Biotech and financial services placed second, each with about 10 percent of overall leasing.

Jeremy Fletcher, senior managing director of Beacon Capital Partners, noted in an email that office occupancy at San Diego Tech Center has gone from 80 percent in March, when the company acquired the property, to its current 95 percent.

“The high-tech industry has great potential in San Diego County as it’s the only industry sector in San Diego County that has experienced continued growth over the last decade,” said Fletcher, whose company last year acquired Wateridge Plaza in Sorrento Mesa for $50.5 million.

“We own 5.8 million square feet of office space in the high-tech markets of San Francisco, Silicon Valley and Seattle, where we continue to experience substantial high-tech job growth,” Fletcher said.

JLL researchers recently noted that job gains in software and other high-tech services have spurred a national infusion of economic activity, in an otherwise lukewarm employment climate. The U.S. high-tech services segment added 108,500 jobs in the 12 months ended Aug. 31, for a rise of 4.6 percent — more than 2.5 times the overall growth rate for office-using sectors.

Star Performer

Jay Alexander, a national managing director in JLL’s San Diego office, said the local office market will likely see technology firms play a growing role in coming years, with rising development in areas including wireless health care technology and data storage that promote corporate efficiency.

The pace of upgrades to older tech office campuses could accelerate, as landlords compete to attract tenants whose employees favor sustainable environments and a host of convenient, on-campus amenities, he said.

The San Diego Tech Center complex, at 9685-9725 Scranton Road, was first built in the early 1980s and underwent significant renovations in 2001. It currently has an on-site Karl Strauss Brewing Co. restaurant, a 5-acre Japanese garden and swimming pool.

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