Where Office Investors Are Buying in San Diego

Technology and life science industries are keeping San Diego’s office market alive. “Investment capital follows growth and San Diego has seen tremendous growth in the life science and technology sectors,” Bob Prendergast, managing director of JLL capital markets, tells GlobeSt.com about the rebound in investment sales volume this year.

Limited availability in popular life science and technology markets like Torrey Pines and UTC submarkets are driving investment capital into Sorrento Mesa and Sorrento Valley. “Properties designed for office are being converted to life science uses. Well located, but antiquated, office properties are being acquired, demolished and rebuilt as life science facilities,” says Prendergast. “As a result, sales of ‘pure’ office buildings, that will remain as office buildings have been few and far between.”

In fact, Prendergast calls the region one of the strongest life science submarkets in the country. “The North Cities, which includes Sorrento Mesa, has seen strong investor demand as the submarket has emerged as one of the strongest life science markets in the county and nation. Paradoxically, life science demand has reduced office inventory with many properties being converted to life science uses.”

The trend has not only led to a surge in office-to-life-science conversions but also to total redevelopment projects. “In some cases existing office properties are being demolished making way for new, state of the art life science facilities,” says Prendergast. “As a result of these conversions/re-developments, office tenants will see increased market rates and will likely disburse to other tech-centric dominated submarkets such as the I-15 corridor.”

The Downtown submarket is also capturing investor attention. Prendergast says that investment capital is seeking life science space in the submarket as well as value-oriented acquisitions.

Investment activity has been building momentum throughout 2021, starting slowing at the beginning of the year. However, a lack of for-sale opportunities has limited transaction activity. “Only five true office sales have occurred in San Diego in the first half of 2021 led by Regent Properties’ acquisition of the 1.5 million square foot Emmes portfolio Downtown and Sorrento Towers North, a 294,000 square foot class A office property in Sorrento Mesa,” says Prendergast.

In the second half of the year, Prendergast expects momentum to continue to increase as investors continue to target life science and tech hubs. This will mean investment capital will look in both established and emerging submarkets. “Investment activity will likely concentrate on the tech-centric growth markets with a focus on the I-15 corridor submarkets including Rancho Bernardo, Carmel Mountain Ranch, Scripps Ranch and Kearny Mesa where there are high concentrations of “FANG” technology companies,” says Prendergast. “San Diego is a target market for many national and international investors and capital is readily available for core, core-plus and value-add assets, and San Diego’s sales volume is only limited by a lack of supply.”