San Diego’s Office Market Watches Young Talent at Work

by Jeff Shaw

— By Tim Helgeson, Senior Vice President, Asset Manager, KBS —

With San Diego’s median age sitting at just 34.9 and only 12 percent of the population over 64, much of the area’s workforce comprises younger Millennials and Gen Z professionals. This new generation of workers has a fresh approach to employment, not to mention a unique shared history that’s shaped by COVID.

As this younger cohort enters and establishes itself in the workforce, employers expect their office space to help them attract and retain young talent. This expectation is influencing investors’ decisions and, in many ways, reshaping the office market in the new normal.

These younger workers will be impacting office market dynamics now and for the next several years in a few different ways: 

Accelerated Repopulation of Offices

Many employees got used to working remotely during the pandemic, but there is ample evidence that companies recognize the importance of having their teams in the office. Younger workers are partially driving this trend. In fact, research shows that Gen Z values the office more now than they did before the pandemic.

The truth is, no remote work situation can compare to face-to-face, on-site interactions for onboarding, teaching, mentoring and advancing less experienced team members. Being together with their co-workers at all levels of the organization enables faster learning and career growth. It also promotes company culture in a way that working from home simply cannot.

In certain sectors, such as life sciences, the need to gather is critical. This industry tends to form real estate clusters, particularly in San Diego, with submarkets like Torrey Pines, University Town Center (UTC) and Sorrento Mesa.

Because in-person collaboration is so important, some firms are prioritizing in-office time. This is accelerating the repopulation of office buildings. It also keeps leasing — particularly in the well-amenitized, Class A office spaces — robust now and in the future. This trend is reflected locally in market statistics. A recent Cushman & Wakefield market report found that Class A space has accounted for more than half of the total occupancy gains in the San Diego office market in 2022 to date. Direct net absorption for Class A office was positive in the third quarter. Owners of Class B and C office properties, which did not perform as well, may seek to upgrade their spaces and incorporate amenities that are particularly appealing to this younger workforce.

Rising Demand for State-of-the-Art Technology Amenities

Employees in their 20s and early 30s were raised in a technology-based society. That makes this cohort extraordinarily digitally savvy, learning new software and devices quickly and utilizing them in their everyday lives.

Due to this background, younger workers expect their workplace to have exceptional internet connectivity and the latest technology available to them. It is incumbent upon office owners to provide this for their tenants. From high-speed internet and Wi-Fi throughout the property to smooth hybrid conferencing capabilities, office users are looking for properties that deliver these amenities. 

Recognizing this trend led our company to achieve WiredScore certification for numerous office assets in our portfolio, including properties in California. Technology will continue to be a top consideration for forward-thinking office owners eager to meet the needs of companies that want to recruit and retain Gen Z workers.

Increased Focus on ESG

Gen Z is one of the most socially conscious generations in today’s workforce. As such, environmental, social and governance (ESG) issues are top of mind in every aspect of their lives, from the products they buy to where they work. This is especially true of the younger people living and working in San Diego, who may have been drawn to the area because it is considered a top green city in the United States. 

Understanding this connection is leading many firms to adopt ESG initiatives that impact where they lease space. Consequently, they are seeking space in office properties run by owners that are committed to reducing their carbon footprint and conserving natural resources; have policies that promote diversity, equity, and inclusion; and clearly demonstrate fairness and the highest level of integrity in their business operations. 

With the younger generations comprising an increasingly larger share of the workforce, landlords who establish and follow ESG principles will benefit from the rising demand for office space that reflects those principles. This is one of the reasons KBS recently established a dedicated Green Team run by an ESG manager, as a proactive strategy to drive our firm toward a sustainable future.

As the business world makes room for its youngest workers, office dynamics are shifting in San Diego, as well as throughout the country. Trends like accelerated repopulation of office space, a desire for state-of-the-art technology and an increased focus on ESG will inform the office sector in markets with younger populations like San Diego for years to come.

Tim Helgeson, Senior Vice President and Asset Manager at KBS in Newport Beach, Calif.

You may also like