Wrobel: In any market that experiences peaking or near-peak rates, there is a consistent expectation that the development pipeline will bubble up as the market continues to take advantage of strong market fundamentals. That said, the development pipeline is still limited to projects that fall in the small-to-moderate size range as the office sectors that tend to produce large million-square-foot projects (i.e., Downtown Los Angeles, the Santa Monica campus district, Century City, etc.) have a limited pipeline due to the underlying rates not supporting new office development (Downtown Los Angeles), local municipalities pushing back against further growth and/or the general lack of developable land.

Powell: Largely because of Proposition M, San Francisco's long-time growth ordinance, construction of new office space is more balanced compared to most markets around the country. For several years prior to this cycle, one bucket of entitled buildings was “on hold' and not built for decades along with another bucket of “unallocated” entitlements not granted. In this cycle, for the first time in decades, both buckets are built or being built. This means the growth-limitation measure is truly limiting new development—leading to a future gap in CBD deliveries from 2019 to 2021 or possibly 2022. Even with only average absorption, this market could become very tight. Of the recent class of new builds, Salesforce Tower is nearing completion, and Park Tower, which sits next to the Transbay Transit Center, is now going vertical and will likely be the next major new construction tower to announce a big lease.

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GlobeSt.com: What else should our readers know about the office sector in your market?

Wakeman: San Diego is known as a great tourism destination with its white sandy beaches and perpetual sunny skies, as an excellent host to large conventions like Comic-Con as well as for its long military history. But San Diego is so much more. It embodies a lifestyle and creativity unlike no other. After the defense meltdown of the 1990s, San Diego reinvented itself into a vibrant, diverse economy. Now known for its high-tech and innovation clusters, from established companies like Qualcomm to research institutions like UCSD, Scripps Research, Salk Institute and J. Craig Venter Institute, the technology, clean tech and life-science industries are thriving. The defense industry, with its strong presence in San Diego, is influencing emerging industries from unmanned drones to cybersecurity. The soaring craft-brewing scene—there are more 130 brew houses now—represents San Diego's entrepreneurial spirit and is another example of a new industry succeeding in San Diego.

Ingham: While segments of the Airport Area and South County have reached previous peak rent levels (or closing in on them), most parts of the Central County, North County and West County submarkets are below previous high points. With vacancy near equilibrium, there is room throughout the market for further rent growth if local economic expansion continues.

Wrobel: The Los Angeles basin office sector has experienced a wave of prolonged success due to the growth of its core industry, entertainment, as the global demand for content continues to strengthen. The lines continue to blur in the cross-over industries of media, technology and entertainment, and we expect that technology-driven gaming entertainment, such as virtual reality and evolving mediums of content, will continue to expand tenant demand in Los Angeles. There is also a long runway for Los Angeles tenant growth as overall venture-capital funding in Los Angeles (top five nationally) significantly outpaces overall tech leasing (Los Angeles is ranked in the late teens compared to other national markets). Finally, the Los Angeles marketplace has the ability to diversify tenant demand and market drivers as it looks to take advantage of events such as the NFL's relocation to Los Angeles, an uptick in convention-center-driven business and the potential for significant infrastructure upgrades that would come with a successful 2024 Olympics bid.

Powell: San Francisco continues to see solid promise in the office market. Vacancies are low, demand remains strong and the supply side is limited in the near future. This is despite an already-long cycle, a year of slower rate increases after the early 2016 IPO and stock market slowdown and slightly negative absorption in the first quarter 2017 (the first time since 2010). How long will this cycle go? While we aren't racing ahead as we did at the end of 2010 with a dramatic increase in rental rates, the market is strong. I predict a “bumpy” 2017 with continuing improvement of all fundamentals in 2018.

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SAN DIEGO—Most California office markets have recovered from the recession, but the development pipelines vary based upon the characteristics of each market. In part 1 of a two-part feature on four different California markets, GlobeSt.com spoke with four JLL executives—Bess Wakeman, EVP in San Diego; Jeff Ingham, senior managing director in Orange County; Josh Wrobel, managing director in Los Angeles; and Wes Powell, international director in San Francisco—to find out how each of their markets is positioned for what lies ahead in the office sector. In part 2, we get their perspective on office development in each of their markets.

GlobeSt.com: What does the pipeline look like for office development in your market?

Wakeman: For one thing, it is definitely starting to get even more interesting Downtown. Manchester Financial Group announced it broke ground on Pacific Gateway this month. In addition to hotels and retail, this ambitious development on a 12-acre waterfront site that currently houses the US Navy, at completion will bring 950,000 square feet of new multi-tenant office product to Downtown. Makers Quarter expects to get off the ground in East Village this year too with a 60,000-square-foot building. Cisterra's bold mixed-use project called 7^th & Market received the green light last October from the City of San Diego. The groundbreaking announcement is expected any day for this project, which consists of 156,000 square feet of office, 115 apartments, a Ritz Carlton hotel and a Whole Foods. All this, and I haven't even mentioned the potential public (City, County and Port of San Diego) and private redevelopment opportunities that exist Downtown.

Ingham: There is currently 1.7 million square feet of office space under construction, with 1.1 million square feet of it located in the Irvine Spectrum area. South County has the lowest vacancy in Orange County at 9.1%, and the Irvine Spectrum area is even lower at 7.7%, therefore, the most well-suited submarket to handle new construction. New projects under construction include the 400 Spectrum tower, the Bridges in South County and the Boardwalk in the Airport Area. This marks the first year since 2008 that more than 1 million square feet will be delivered to the market in a calendar year. Several sites previously planned for office and industrial projects were replaced with residential development, which will limit future commercial supply.

Wrobel: In any market that experiences peaking or near-peak rates, there is a consistent expectation that the development pipeline will bubble up as the market continues to take advantage of strong market fundamentals. That said, the development pipeline is still limited to projects that fall in the small-to-moderate size range as the office sectors that tend to produce large million-square-foot projects (i.e., Downtown Los Angeles, the Santa Monica campus district, Century City, etc.) have a limited pipeline due to the underlying rates not supporting new office development (Downtown Los Angeles), local municipalities pushing back against further growth and/or the general lack of developable land.

Powell: Largely because of Proposition M, San Francisco's long-time growth ordinance, construction of new office space is more balanced compared to most markets around the country. For several years prior to this cycle, one bucket of entitled buildings was “on hold' and not built for decades along with another bucket of “unallocated” entitlements not granted. In this cycle, for the first time in decades, both buckets are built or being built. This means the growth-limitation measure is truly limiting new development—leading to a future gap in CBD deliveries from 2019 to 2021 or possibly 2022. Even with only average absorption, this market could become very tight. Of the recent class of new builds, Salesforce Tower is nearing completion, and Park Tower, which sits next to the Transbay Transit Center, is now going vertical and will likely be the next major new construction tower to announce a big lease.

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GlobeSt.com: What else should our readers know about the office sector in your market?

Wakeman: San Diego is known as a great tourism destination with its white sandy beaches and perpetual sunny skies, as an excellent host to large conventions like Comic-Con as well as for its long military history. But San Diego is so much more. It embodies a lifestyle and creativity unlike no other. After the defense meltdown of the 1990s, San Diego reinvented itself into a vibrant, diverse economy. Now known for its high-tech and innovation clusters, from established companies like Qualcomm to research institutions like UCSD, Scripps Research, Salk Institute and J. Craig Venter Institute, the technology, clean tech and life-science industries are thriving. The defense industry, with its strong presence in San Diego, is influencing emerging industries from unmanned drones to cybersecurity. The soaring craft-brewing scene—there are more 130 brew houses now—represents San Diego's entrepreneurial spirit and is another example of a new industry succeeding in San Diego.

Ingham: While segments of the Airport Area and South County have reached previous peak rent levels (or closing in on them), most parts of the Central County, North County and West County submarkets are below previous high points. With vacancy near equilibrium, there is room throughout the market for further rent growth if local economic expansion continues.

Wrobel: The Los Angeles basin office sector has experienced a wave of prolonged success due to the growth of its core industry, entertainment, as the global demand for content continues to strengthen. The lines continue to blur in the cross-over industries of media, technology and entertainment, and we expect that technology-driven gaming entertainment, such as virtual reality and evolving mediums of content, will continue to expand tenant demand in Los Angeles. There is also a long runway for Los Angeles tenant growth as overall venture-capital funding in Los Angeles (top five nationally) significantly outpaces overall tech leasing (Los Angeles is ranked in the late teens compared to other national markets). Finally, the Los Angeles marketplace has the ability to diversify tenant demand and market drivers as it looks to take advantage of events such as the NFL's relocation to Los Angeles, an uptick in convention-center-driven business and the potential for significant infrastructure upgrades that would come with a successful 2024 Olympics bid.

Powell: San Francisco continues to see solid promise in the office market. Vacancies are low, demand remains strong and the supply side is limited in the near future. This is despite an already-long cycle, a year of slower rate increases after the early 2016 IPO and stock market slowdown and slightly negative absorption in the first quarter 2017 (the first time since 2010). How long will this cycle go? While we aren't racing ahead as we did at the end of 2010 with a dramatic increase in rental rates, the market is strong. I predict a “bumpy” 2017 with continuing improvement of all fundamentals in 2018.