When to Convert Industrial to Creative Office

Dated industrial product is still one of the top choices for creative office conversion. In San Diego—like in many markets—creative office has become ubiquitous for all office users, and the limited supply of created space is creating opportunities for developers. BLT Enterprises has experience converting these spaces into creative office, and likes the open layout that industrial provides. The firm recently completed converting 6,500 square feet of raw industrial space in the Sorrento Mesa into creative office, installing roll-up doors, outdoor patios and upgraded kitchens. The firm has seen success with similar projects in the San Diego market, and says there is a pent-up demand for creative space. To find out more about the demand for creative space, why industrial is a good choice for creative conversion, we sat down with Bernard Huberman, CEO and founder of BLT Enterprises, for an exclusive interview.

GlobeSt.com: What is demand for creative office space like in San Diego?

Bernard Huberman: Demand for creative office space in San Diego has continued to soar. Creative office, once a niche product type for tech tenants, has now become the norm. Traditional tenants are demanding spaces that feature creative office amenities and features, which is further driving increased demand for this product type throughout the area. This is largely due to the fact that tenants are seeking top talent, and that top talent is demanding creative space. In order to attract and retain employees, employers are looking for unique, amenity-rich spaces that provide a collaborative and community environment.

San Diego, in particular, has an extremely low unemployment rate of 3.3% and companies and residents alike continue to migrate to the region. This is creating tremendous pent up demand for creative space, and we anticipate that we will continue to see older, traditional office product converted to creative space to meet this growing demand.

GlobeSt.com: Why was this industrial property an ideal fit for conversion?

Huberman: We have deep expertise in industrial re-use, which is why this was a natural fit for us. We knew it would provide a lot of open space and volume following demolition, and that the high ceilings would easily lend itself to quality creative office. For example, we recently completed a similar creative office conversion in an adjacent property in the same submarket. This was extremely well received, and we anticipate that this asset will receive a similar response.

GlobeSt.com: Tell me about the renovation and your vision for the project.

Huberman: Our goal was to completely reposition the asset to feature an open layout and a wide range of in-demand amenities that tenants are craving. We incorporated an open floor plan complete with three executive offices, a large conference room, upgraded kitchen, outdoor patio and rollup door, among other amenities. The open floor plan will provide flexibility to accommodate a diverse range of tenants, especially in the Sorrento Mesa submarket, which has a growing ecosystem of businesses across a variety of industries. There is also significant demand from tenants for outdoor spaces. The outdoor patio area will provide tenants with a unique and comfortable area to gather and aid in providing that community feel.

GlobeSt.com: What was the capital investment?

Huberman: The total repositioning cost was approximately $500,000. That said, these capital improvements strategically position the asset to attract high-quality tenants and to capitalize on the ongoing rent growth throughout the region. Rents throughout San Diego County have continued to rapidly rise. Over the course of the last five years alone, office rents for Class A and B product have increased by more than 20%. We anticipate that the market will continue to see steady rent growth over the next several years, positioning the asset to perform well over time.

GlobeSt.com: What is your business plan for the property, and what has interest been like for potential tenants?

Huberman: Our strategy with all our properties is a long-term hold approach. We are investing in the top markets in coastal California that are strategically positioned to perform over the long haul and investing in capital improvements that significantly enhance the overall value of our assets and the opportunity for rent appreciation. We want tenants that want to lease with us for the long-term and this property is no exception. We strategically position our assets with the flexibility to grow and expand along with our tenants, which is why many of our tenants stay with us for so long.

For example, we recently signed a 6-year lease renewal for one of our assets in Oxnard that is leased to public company, Mercury Systems. The firm has been at the property since 2008, and it serves as its west coast headquarters. Because of this hands-on approach to essentially serve as the ‘last landlord’ for companies and the asset’s newly renovated features, we anticipate that tenant interest will be extremely high, and that the property will lease quickly. We’ve already had tours with several interested tech and life science companies.