2014 development in San Diego will be sensitive to specific submarkets and industries

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JLL's Romik Kesian and Bess Wakeman

JLL’s Romik Kesian and Bess Wakeman

The outlook for development in 2014 and beyond in San Diego is different, depending upon which submarket you are focusing, according to commercial real estate professionals with Jones Lang LaSalle’s San Diego office. While many submarkets are likely to see new development in the coming years, the motivation behind the new building varies by location.

In suburban submarkets such as UTC, Sorrento Mesa and Del Mar Heights, vacancies are steadily declining while rental rates are slowly increasing and large blocks of space are nearly non-existent.  Tenants in older buildings are now seeing rents comparable to those in newly constructed buildings. These changes in market conditions have some developers willing to build speculative office product and the trend will likely continue.

“Certain owners are very optimistic that the organic growth that San Diego is currently experiencing is going to continue,” states Bess Wakeman, Executive Vice President of Agency Leasing with Jones Lang LaSalle in San Diego. Wakeman cites The Irvine Company’s development of 400,000 sq ft of speculative office product in UTC as an example of this optimism and she “expects other owners such as Kilroy, Hines and Beacon to follow suit in the near future.”

According to Romik Kesian, Senior Vice President of Project & Development Services, not all submarkets will enjoy the same spec development, at least for another year.

“In San Diego, currently there is a vacancy rate of about 14 percent.  Until that number drops below 10 percent, developers are most probably not going to broadly develop spec buildings,” according to Kesian. “I don’t believe extensive spec development will take place before 2015. In the meantime, developers will keep on investing in existing buildings.”

The observations are included in a video just released by Jones Lang LaSalle on commercial real estate issues in San Diego. The development video is part of a video series that recaps market performance of the past year in various sectors and provides guidance as to where the industry is heading.

Wakeman, however, views the downtown San Diego development story as “a little different.”

“With most of the downtown buildings featuring aging infrastructure, developers like Lowe Enterprises and the IDEA Partners in the East Village and BBL Commercial Real Estate in the financial district are developing buildings from the inside out and these buildings have extensive amenities, allowing for much more collaboration and innovation from the businesses and promote wellbeing for their employees,” she states. 

While the vacancy rates and the rental rates may not justify construction in San Diego’s central business district, the 25,000 residents that are accessible to downtown employers does warrant new construction in the area.  According to Wakeman, “The downtown San Diego workforce is very robust.”

 Kesian also expects the submarkets that are home to San Diego’s flourishing biotech and technology companies to continue to see activity.  “Investors will always follow investments that give them the highest rate of return on their money.  The tech sectors give them the opportunity to invest to get higher returns as the submarkets where these companies are located will continue to see growth in rental rates.”

Each of the Jones Lang LaSalle videos offers the viewer focused information to better understand local real estate conditions and opportunities. The videos are presented in three main categories that reflect important industry sectors in San Diego – capital markets, healthcare and development – and feature Jones Lang LaSalle brokers in the firm’s local office.

The videos run less than five minutes long and are a personalized way to deliver vital material. The brokers featured are experts in their fields and the information discussed is at the core of what commercial real estate industry professionals need to know.

To learn more details about development in San Diego, the entire video is available to view here.

Watch the complete Jones Lang Lasalle video series.

Tweet this:  #SanDiego spec office development expected to pick up in 2015. Get insight from #JLL @BessWakeman, RomikKesian. http://bit.ly/1gak4JR




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