Exciting Times Ahead for San Diego's Skyline

Brant: “I’m very excited about the two largest office developments planned for Downtown: Manchester’s Pacific Gateway on the water’s edge in the west, and L2HP’s Makers Quarter in the burgeoning East Village. These and a handful of smaller projects in the pipeline will really accelerate the transformation of Downtown.”

SAN DIEGO—With two large office developments and a handful of smaller projects planned for Downtown San Diego, the submarket is gearing up for major skyline office leasing activity, JLL ‘s senior research analyst Josh Brant tells GlobeSt.com exclusively. “In our update on the San Diego skyline this year, we discovered some trends that were in line with the national average and some that did not correspond to the trends that we’re seeing on the national level.” Brant says rental rates among the skyline offices are still on the rise, and rates are 9.7% higher than the first quarter of 2015, but rent growth has started to moderate. “Unlike many of the skyline markets across the US, the average asking rental rate for the skyline office market has not surpassed 2007′s peak level. But, the cream-of-the-crop rental rates are at or near all-time highs. Earlier this year, a full floor was leased at DiamondView Tower , one of the most desirable offices in the county, at a rate more than 50% higher than the class-A average for Downtown.” On the investment side, Brant tells us 2016 is shaping up to be a strong year for the San Diego skyline. “No new speculative or multi-tenant offices have been added to the Downtown skyline in this recovery. I’m very excited about the two largest office developments planned for Downtown: Manchester’s Pacific Gateway on the water’s edge in the west, and L2HP’s Makers Quarter in the burgeoning East Village. These and a handful of smaller projects in the pipeline will really accelerate the transformation of Downtown. Exciting times are ahead for the San Diego skyline. According to the firm’s recent skyline office report, rents for office buildings that make up the San Diego skyline have jumped into record territory this year—an average of $2.71 per square foot. Rents for trophy office towers within the skyline are even higher at $3.65 per square foot. But the report also shows that rent growth may be moderating, especially in high-growth markets that have recorded consistent rent appreciation over the last several years. JLL says foreign investors , especially Canadians and Germans, remain focused on primary markets but are moving to hot secondary markets along with their domestic counterparts, and landlords need to retain the gold standard of skyline assets, mindful they don’t tarnish with complacency. In the report, Brant says, “The average San Diego skyline rents have risen significantly over the past three years, yet still remain 6.2% lower than 2007′s peak levels. Rents for Downtown’s most desirable offices are pushing into uncharted territory.”