What area is your expertise?
Office / San Diego/ Submarket: Kearny Mesa
What trends do you see presently in office development in your area?
Once known primarily as an industrial market Kearny Mesa continues to add new office buildings to its inventory. The market currently consists of approximately 9.4 million square feet of office space of which only 13.8 percent is Class A space. Recent development projects support an increased movement toward new Class A office buildings. Two brand new Class A developments underway in Kearney Mesa include the Sunroads Centrum (273,468 square feet) and the Terraces at Copley Point (380,000 square feet). These two projects together will add an additional 653,468 square feet for a total of 1.3 million square feet of Class A office space in the Kearny Mesa market.
Who are the active office developers in your area?
Sudberry Properties, Sunroads Enterprises, the County of San Diego, Badiee Development Inc., and The Ghianni-LaRussa Group.
Please name one or two significant office developments in your area. What impact will these projects have on the market?
Sunroad Centrum: The Sunroad Centrum is a 273,468-square-foot, Class A office tower in Kearny Mesa designed by Brian Paul & Associates, which is underway and ready to deliver approximately May 2008. The building is developed and owned by Sunroads. This development offers the region’s first Class A, LEED certified building which is part of a master planned community that will ultimately include 1 million square feet of Class A office space, over 1,000 residential units, and a two acre park. Unobstructed 360 degree views, unparalleled access, an exercise gym with shower facilities, high-speed elevators, and an ample 4/1000 parking ratio are among the tower’s many features.
Where is the majority of development taking place? Why is this area doing well?
Currently, the majority of development is taking place in Kearny Mesa and Downtown. The opportunity to find land and develop in San Diego is scarce and for that reason the Kearny Mesa market allows for some potential development but mainly redevelopment opportunities. In addition, downtown San Diego is an outstanding market with numerous amenities and a strong base for tourism which helps provide a prime market for continued redevelopment opportunities.
What area do you expect to be the next big development market? Why?
The downtown market will continue to be a strong redevelopment area due to its numerous amenities and strong base of tourism. I would expect to see redevelopment projects throughout the entire downtown area with a focus on East Village due to opportunity incentives. In addition, due to the scarcity of undeveloped land any new projects throughout San Diego County will have to take place in small pockets as land becomes available.
What areas are doing well in terms of office leasing? Which areas are struggling with office leasing?
Kearny Mesa market has continue to be a strong office market as vacancy decreased from the beginning of the year to the end of the first quarter in 2008 from 10.2 percent to 9 percent. Carlsbad is seeing an opposite affect as vacancy has increased from 18.9 percent at the beginning of 2007 to 24 percent at the end of first quarter 2008.
Please give a measure of office vacancy rates. Please give a measure of available sublease space.
The office vacancy in the Kearny Mesa is 9 percent with 17 percent availability. Sublease space available is at 1 percent.
What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in the next year?
The SBA 504 Loan continues to offers small businesses low, long-term, fixed-rate financing. These rates continue to be available to the small business owner at very low rate. I would predict that prospering small businesses would look to take advantage of low rates in addition to the availability of owner-user office product on the market. Small business owners looking to lock in at low rates could potentially look for product available with tenants in tow to help subsidies costs until business picks up to full throttle.
What is the status of job growth/(un)employment rates and what bearing will it have on the office market?
Unemployment rose from 4.3 percent in February 2007 to 5 percent in February 2008. This means the demand for office space will decline and vacancy will increase.
Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in the next year to absorb a great deal of office space? What areas will be affected?
The defense and military contracting industries remain strong in addition to communications and software providers. I would anticipate these types of tenants look to take advantage of different opportunities that become available in this market.
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Submitted by Matt Midura, associate with NAI San Diego.