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Tuesday, Sep 27, 2022
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Overview of the Submarket Outlook

Special to the Business Journal

The current submarket outlook for the San Diego area is summarized below:

– Downtown: Total Downtown office vacancy is at an all-time low of 9.6 percent, down from 10.8 percent last year. The Class A vacancy rate of just 7.5 percent is one of the lowest rates reported by any of the county’s major submarkets.

First-quarter net absorption of 110,000 square feet exceeded the total net absorption recorded for all of last year. Low vacancy and blossoming urban redevelopment all point to Downtown as the county’s next area for office development.

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The conversion of the former Paladion retail center into office space expected to be completed in the second quarter, and the subsequent occupancy by American Specialty Health Products, will add another 209,000 square feet to Downtown’s absorption.

Several new projects are in the planning stage, including Campus at the Park, a multibuilding, high-technology campus in the ballpark redevelopment district. This, along with other proposed vertically wired smart buildings and cutting-edge technology, will put San Diego on a competitive footing with urban hubs such as San Francisco, San Jose and New York.

– Del Mar Heights: Since 1996, this popular submarket’s inventory has increased by 87 percent to more than 1.8 million square feet. Another 780,000 square feet is under way in six projects. Despite this surge in new development, Del Mar Heights reports a nominal 2.7 percent vacancy. Peregrine Systems accounts for 420,000 square feet of the new construction with an option on another 118,061 square feet.

– University Towne Centre: One-third of the 1.1 million square feet of new space added in UTC since 1997 is accounted for by build-to-suits, signaling the growing popularity of the “flex” office product prevalent in Eastgate Technology Park. New Eastgate tenants include Computer Science Corp., Ensemble Communications, and Sun Microsystems (expansion).

First-quarter net absorption of 78,000 square feet, combined with the 380,000 square feet absorbed in 1999, reflect UTC’s appeal to flex users and image-conscious tenants who enjoy the area’s traditional Class A product. Several Class A buildings slated for completion in 2000 and 2001 , totaling 424,000 square feet , include: Bridge Pointe Corporate Centre II and Sunroad Corporate Centre I. UTC Executive Plaza was completed this year and is 96 percent occupied.

– Sorrento Mesa: The county’s fourth largest submarket, Sorrento Mesa, has had more than 1.4 million square feet of new office inventory come online in just four years. Sorrento Mesa’s first-quarter net absorption of 277,000 square feet substantially reduced its vacancy rate to 8.7 percent, down from 17.7 percent last year.

The area required some time to absorb all of the new construction that occurred over the last two years, especially in Pacific Tower (244,500 square feet), Sorrento Gateway I (172,800 square feet) and Seaview Corporate Center II (127,000 square feet).

Sorrento Mesa is a central hub for high-technology firms, and developers continue to see strong potential here, although land is becoming scarce and expensive. Sorrento South, a two-building, 273,000-square-foot project by WCB Properties, broke ground first quarter.

– Carlsbad: Nearly all of the 500,000 square feet of new space added to Carlsbad in 1999 was speculative, pushing the vacancy up from 7.5 percent in the first quarter to 17.7 percent at year-end. Despite the 63,300 square feet absorbed in the first quarter this year, the vacancy remains virtually unchanged.

With other submarkets extremely tight, tenants in the marketplace may find Carlsbad attractive, both in terms of available space and lower rents. Another positive aspect to Carlsbad is that remaining construction is down to less than 100,000 square feet.

– Interstate 15 Corridor: Several submarkets along this popular north-south corridor reported notable new development in 1999. Poway saw new back-office facilities for Geico and First American/Credco totaling 433,000 square feet. In Rancho Bernardo, Legacy Partners completed The Point, a two-building, four-story complex. Recent development along I-15 near Scripps Ranch include: The completed 188,275 square feet for Nokia in Northridge Corporate Center and its 135,000-square-foot second phase, which is under way; and the soon to be completed 154,000-square-foot building for Maintenance Warehouse (Home Depot).

The first quarter vacancy rate for the 1-15 market is 16.3 percent. Given the tenant interest in the market and the draw that Nokia will most likely have, the vacant square footage is expected to be absorbed this year.

Wayne and Miller are senior vice presidents at Burnham Real Estate Services.

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