San Diego markets poised to take advantage of leasing turnaround

By THOR KAMBAN BIBERMAN, The Daily Transcript

Monday, November 11, 2013

Qualcomm will expand its San Diego footprint from about 4.5 million square feet to about 7 million square feet within the next three years, probably somewhere away from its Sorrento Mesa campus, according to a CBRE first vice president.

Michael Hoeck, while at a NAIOP San Diego breakfast Thursday at the Marriott Del Mar, said the wireless provider has been eying at least two locations outside Sorrento Mesa, where most of its operations are in leased or owned facilities.

One is the 105-acre Summit property owned by the Jay Paul Cos. along West Bernardo Drive in Rancho Bernardo, where as much as 2 million square feet of office space could be built.

The second site is a Pardee Construction-owned property north of state Route 56, between Del Mar Heights and Rancho Penasquitos, entitled for as much as 770,000 square feet of office space. Qualcomm (Nasdaq: QCOM) did not returns calls seeking comment.

Hoeck was just one of 11 panelists who viewed leasing activity from office, industrial, retail, life science and capital markets.

Randy LaChance, a Voit Real Estate Services senior vice president, said 50-year-old buildings in Kearny Mesa command such high rents it doesn't make economic sense to build new ones.

Elsewhere, Derek Hulse, a Colliers International senior associate, said despite some office rents being 10 percent better than they were during the worst recession period, they still generally remain 15 percent below their pre-recession peaks.

To keep rents up, Steve Bruce, a Cushman & Wakefield associate, said owners of older office and industrial buildings in Carlsbad are starting to upgrade and reposition them.

"There are a lot of flex buildings where we'll see an uptick in creative office space," Bruce said.

Bess Wakeman -- a Jones Lang LaSalle (NYSE: JLL) executive vice president who covers the downtown San Diego office market -- said last month's announcement that the Kleinfelder architectural firm is moving into 43,000 square feet in the 550 Corporate Center building indicates that not all larger companies are fleeing downtown.

"Meanwhile, East Village is all entitled [and] ready to go," Wakeman said. "We need jobs. If we don't get them this vision isn't going to work."

In terms of investment, Bob Prendergast, a JLL managing director of capital markets, said San Diego has long been considered a second-tier city.

"The prices were $800 a square foot in San Francisco, but as markets like that became tighter, people began to look to San Diego," Prendergast said.

Prendergast noted that 701 B St., 707 Broadway and the Union Bank Building at 530 B St. are each on the market in downtown San Diego.

At the county's far southern end, where Otay Mesa's industrial market suffered during the recession, Ryan Spradling -- a Cassidy Turley director -- said there might finally be light at the end of that tunnel.

Spradling said five lease transactions alone represented more than 200,000 square feet on the mesa since the year began.

"The availability of Class A space on the mesa will be in big decline," Spradling said.

Spradling added that Otay Mesa lease rates that had been as low as the low 30-cent-per-square-foot ranges if not lower, are starting to climb back up once more.

"Mike Murphy [who is planning a 2 million-square-foot industrial park] may be well positioned to develop again," Spradling said.

Ron Pepper, owner of Retail Insite, said after a bumpy ride during the recession, San Diego is back to being one of the country's top-five retail markets.

"There's hardly any vacancy in the core markets at all," Pepper said.

Reg Kobzi, a CBRE (NYSE: CBG) senior vice president, countered that the retail market here still feels effects of the recession.

Pepper said he is encouraged by Internet purchases, noting that Amazon.com (Nasdaq: AMZN) is expected to increase the number of its distribution centers across the country from 56 to about 90 within the next three years -- representing tens of thousands of jobs that will fuel the need for retail.

Pepper said malls they don't have to be hurt by Internet retailing, adding, "It's about the experience. People still want to go out and shop."

Kobzi added that grocery stores are such a strong asset class that Westfield has a corporate directive to put grocery stores in all their malls. The Australian retailer has six malls in San Diego County.

On the industrial front, Dennis Visser, a Cassidy Turley managing director, said there was about 650,000 square feet of net industrial absorption last year and 450,000 square feet of net absorption is anticipated in 2013.

"And we haven't seen the rent growth we might have expected," Visser said, adding that he does expect that to happen in 2014.

Visser said larger users are returning, and added that some submarkets are already seeing industrial vacancies of less than 6 percent.

Jerry Keeney -- a principal with Avision Young who specializes in biotechnology leasing -- said sales of drugs such as Acadia Pharmaceuticals' anti-psychotic Pimavanserin have become so strong that it has gone from its original projection of $100 million to $300 million, as recently as two years ago, to an estimate of $2 billion today.

Keeney said with three life science REITs -- BioMed Realty TrustHCP and Alexandria Real Estate Equities -- controlling a majority of local life science space, finding larger tenants has become increasingly difficult for other landlords.

Keeney said if he is surprised by anything it is the is very stiff competition for even the smaller spaces

 

  • Posted on   11/12/13 at 08:29:09 PM   by Josh  | 
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