A new report from brokerage firm JLL notes that 2017 is the 10th consecutive year in which downtown San Diego started the year with no new speculative office space under construction within its “Skyline” subset — in other words, the city’s 20 tallest towers.
In the current climate, the past decade’s lack of new development in that high-rise segment is now translating into a downtown office market leaning in favor of landlords, with dropping vacancies and rents that are rising or at least stabilizing for most of the top 20 downtown towers.
JLL’s annual Skyline report examines trends for the tallest office buildings in 57 U.S. and Canadian metro markets. At the end of the first quarter, the San Diego Skyline vacancy rate was 11.2 percent — below the national rate of 12.9 percent for Skyline properties. Rents in local Skyline buildings averaged $34.08 per square foot at the end of the first quarter, up from $33.84 in 2016 and $32.28 in 2015.
The lack of new product has also kept downtown’s existing towers in play, in terms of acquisitions by new owners and investors.
For instance, JLL reports that the high-rise at 530 B St., which was acquired by Bosa Development in early 2016 for $53.2 million, is expected to trade again later this year.
Also, one of the office crown jewels of San Diego, DiamondView Tower in East Village, is being marketed for sale. DiamondView, the only multitenant office tower in East Village, was last purchased in 2012 for $121 million by a partnership that included San Diego’s Cruzan Monroe (now known as Cruzan) and Cigna Investments Inc.
“Investor activity for San Diego Skyline office buildings remains consistent with nearly 1 million square feet expected to sell in 2017, following 1.2 million square feet trading hands in 2016,” said Bob Prendergast, a JLL managing director who handles capital-markets services in the company’s San Diego office.
After four downtown high-rises changed hands in 2016, there have now been sales involving 65 percent of the San Diego Skyline buildings since the current market recovery began in 2010. JLL notes that two companies now own 50 percent of downtown’s Skyline office buildings — Irvine Co. (six towers) and Emmes Realty Services of California (four towers).