Regent Properties Buys $420M San Diego Office Portfolio

Regent Properties has expanded its office portfolio in San Diego. Through its Regent Opportunity Fund V, the firm spent $420 million on a four-property office portfolio in Downtown San Diego. All four properties are high-rise towers.

The properties in the acquisition include 1 Columbia Place, 701 B Street, 2 Columbia Place and 707 Broadway. The portfolio totals 1.5 million square feet, representing 16% of the total class-A and class-B office space in Downtown San Diego. The previous owners had upgraded the common areas, and Regent plans to continue to implement hospitality-focused upgrades throughout the portfolio. This will include adding fitness and conference centers, eateries, and community gathering places such as outdoor terraces and wine lounges.

While demand for office space has receded during the recession, Regent Properties remains bullish on the market segment. This acquisition was part of a business plan to acquire $2 billion of high-quality office assets in the Sunbelt region in the next two years.

The strategy follows the flow of migration over the last several years, which has supported a boom in Sunbelt markets. During the pandemic, office properties in major metros struggled, but the Sunbelt region has been a different story. A report from JLL earlier this year found that office demand will be the strongest in the Sunbelt and Mountain West submarkets over the next 36 months, which JLL estimates will outperform gateway cities in office absorption and rent growth as companies relocate offices and adopt more distributed work models.

San Francisco, New York, and Seattle suffered most last year, registering -7.8%, -4.5%, and -3.1% drops, respectively, in occupancy. Meanwhile, Sun Belt markets like Atlanta (-0.6%), Raleigh-Durham (- 0.7%), and Phoenix (-0.7%) remained more stable.

Companies have also followed the population growth. Oracle, HP Enterprise, and Palantir Technologies have all moved their headquarters out of the Bay Area into Sunbelt cities. This is the kind of demand that Regent Properties is looking to capitalize on in its investment strategy. According to Sam Kraus, Regent Properties’ EVP and Head of Acquisitions, San Diego is a perfect fit for that strategy. He says that the market has “the strongest relative value compared to any other tier-one location on the West Coast.” In addition, home prices are expected to increase 8% this year, more than anywhere else in the nation.