San Diego Office The Pinnacle Trades Hands

A partnership between Ascentris and Harbor Associates has sold The Pinnacle, a 110,000-square-foot class-A office building in the San Diego suburb of Rancho Bernardo. The sales price of the property was not disclosed.

Ascentris and Harbor Associates sold the property after completing a value-add business plan. The duo purchased the property in 2018 and made capital improvements, including upgrades to the outdoor common area patio, the lobby, the showers and locker rooms, and the addition of electric vehicle charging stations. The improvements helped drive the building occupancy from 84% at the time of the purchase to 98% at the time of the sale. In addition, the ownership increased rental rates by 20%. The leasing activity prompted the owners to sell the asset.

The leasing activity in the building is particularly impressive amid the backdrop of the pandemic, which has created serious challenges for office owners. For all of 2020 and early 2021, San Diego posted five consecutive quarters of negative office absorption. That began to change by the middle of the year, culminating in 269,000 square feet of positive absorption in the third quarter, according to research from Colliers. The office leasing demand in the third quarter reached levels not seen since 2018 and 2019, and according to the report, it is a sign that the office market has turned a corner.

The leasing activity helped to drive the office vacancy rate down 32 basis points in the third quarter, settling at 13.5%. Class-A vacancy was down a full percentage point to 14.9%, and class-C availability is the lowest at 9.2%. Asking rents also continued to improve to $2.98 per square foot for the County, and $3.53 for class-A rents. The sublease market also improved with vacancy in that market segment falling 26 basis points to .89%, dipping below 1% for the first time since the beginning of the pandemic.

There have been notable office transactions in the market, despite some of the leasing challenges. Most of those deals have been office to life science conversions. In October, Longfellow Real Estate Partners acquired a nine-property office portfolio in San Diego from PS Business Parks for $315.4 million with plans to convert the 371,281-square-foot property into a life science campus, for example.