The low rise at the northwest corner of First Avenue and G Street, constructed by one of San Diego’s most esteemed builders, is the picture of modern office perfection.
Designed with tech worker efficiency in mind, each of the four floors is big and open, with natural light streaming in from floor-to-ceiling glass windows. An inviting, central courtyard and a Peloton-equipped fitness center are ready to compete for employee downtime. A street-level restaurant space opposite the future Campus at Horton could satisfy other cravings. And, despite the building’s short stature, there are still plenty of quintessential urban views to be had. There’s even underground parking.
Yet the 167,000 square-foot Paladion project from Bosa sits eerily empty, despite being ready for tenants for nearly a year. The building, thanks to a COVID-driven lockdown on corporate leasing interest, finds itself stopped at what had been a green light for developers ready to transform downtown San Diego’s dated office supply ahead of a banked-upon influx of new-to-market technology and biotech companies.
The project is not an anomaly. Everyone is struggling to attract tenants.
The fourth floor at The Paladion in downtown San Diego has 44,877 square feet of office space and includes floor-to-ceiling windows. It also features a wrap-around balcony that overlooks the courtyard below.
(Kristian Carreon/For The San Diego Union-Tribune)
Downtown is currently home to 12.3 million square feet of office space. More than 19 percent of the inventory is vacant, according to data supplied by commercial brokerage Jones Lang LaSalle. When factoring in all of the space currently being offered for lease, including inventory under construction and sublease opportunities, there is nearly 5 million square feet of office space available for the taking — or more than 40 percent of downtown’s available stock.
The figures also leave out some of the region’s most ambitious bets still on the horizon. For instance, a development team led by the San Diego Padres wants to turn the Tailgate Park parking lot near Petco Park into a 1.35 million-square-foot tech or biotech campus surrounded by apartments, shops and public gathering spaces.
“It’s no secret, the last 12 months during COVID, office activity, in general, was basically at a standstill,” said Tony Russell, an executive with Jones Lang LaSalle who specializes in office leasing and is working to fill the Paladion.
In fact, no big deals were signed in 2020, he said.
Companies that would, in normal times, move around chose to stay put and sign short-term leases. Others moved out entirely — or tried to — embracing a new work-from-home culture as a convenient cost-savings measure. And a post-pandemic reality is one in which companies will require less space per worker, meaning downtown vacancy rates are anticipated to creep up more this year and next.
“There will absolutely be a reduction in office space demanded by existing downtown San Diego firms,” said real estate analyst Gary London.
“The range in overall reduction will depend on how many employees may elect to permanently or mostly continue to work from home. If 1 out of 40 workers stay home, the result would be a reduction of 300,000 square feet in office needs downtown. If 1 out of 10 workers stay home, the result would be a reduction of 1.2 million square feet in office needs downtown.”
That leaves major projects such as Kilroy’s nearly finished Little Italy complex, 2100 Kettner, and Stockdale Capital Partners’ much-anticipated Horton Plaza conversion, slated to debut in 2022, in a bit of a leasing wasteland.
“It’s bad timing, but they may be able to attract new employers and new employment clusters,” London said. “That remains to be seen.”
Optimism, even if it’s tempered by a little anxiety, remains — especially in circles where there’s money on the line. Downtown advocates and real estate investors are looking past the red light of today’s circumstances and into crystal balls of wishful-meets-informed thinking to envision a rosier future.
“A lot of very sophisticated tech and biotech builders are betting on downtown — and we are too,” said Betsy Brennan, who runs the Downtown San Diego Partnership, an influential business association group with members that include the aforementioned builders. “Now’s the time that we really need to market it.”
The campaign has already started.
The Partnership spent $55,000 to turn its office conference room, on the ground floor of the Wells Fargo building at the corner of B Street and Fifth Avenue, into a so-called “Downtown Innovation Center.” Seven supersized displays, powered by what’s called a Liquid Galaxy platform, use Google Earth imagery to fly you over the heart of the city.
The tool provides visitors with a panoramic picture of everything happening in downtown San Diego. And a special deck prepared by the Partnership marries the technology with a compelling tale about the region’s cool neighborhoods, the many transit connections and the highly educated workforce living nearby.
The Downtown Innovation Center, located in the conference room at the Downtown San Diego Partnership’s office, features a seven-panel setup for displaying 3D maps and graphs.
(Jarrod Valliere / The San Diego Union-Tribune)
Altogether, the Innovation Center is meant to tell the story of the downtown market — one, all-encompassing story as opposed to a dozen or so partial drafts circulating among brokers, tenants and other groups.
“The key to success for the downtown market is going to be out-of-town companies. It’s not reshuffling Torrey Pines companies to downtown. There’s not enough of them and it’s not going to make it all work,” said Rick Fultz, who heads up trade association BioCom’s San Diego branch and is working alongside Brennan, but with the primary focus of creating a life science cluster downtown.
“You have to recruit out-of-town companies, and to do so you need some pretty elaborate technology to communicate all that’s down there. It’s not just a couple of statistics — you’ve got to be able to tell the entire story. It’s a pretty complicated story.”
The Innovation Center’s pitch starts with an immersive dive into the vibrancy of the urban community. Then, it delves into downtown’s proximity to the airport, multiple industry clusters and the border. From there, the narrative attempts to get closer to home, showing off the area’s family and worker-friendly amenities (Petco Park, The Midway Museum, The Symphony Shell), and suggesting that there’s room for families and businesses to grow.
And, of course, there’s talk about what’s next, namely that the ballyhooed biotech office developer IQHQ is building a life science city along San Diego’s Bay that will usher in a new era in downtown life.
It’s a beautiful story — until you look out the window.
The Downtown San Diego Partnership’s Clean and Safe Program, funded by area property owners, is dedicated to maintenance, street cleaning, public art and homeless outreach. But downtown doesn’t always roll out the most inviting welcome mat for guests.
“If homelessness is a major (problem), if there are security issues, that will be a tough sell,” Fultz said.
That’s hopefully just a short-term challenge.
“When you’re talking to companies, they’re looking at a five to 10-year window. The current situation isn’t everything,” Fultz said. The logic even applies to demand for space, he said. “Everybody’s assuming, especially in biotech, that in the long term, we’re all back (in the office) and we will need a very attractive workplace to recruit the top talent.”
There will be plenty of space.
A view of the central outdoor atrium from the fourth floor balcony at The Paladion in downtown San Diego.
(Kristian Carreon/For The San Diego Union-Tribune)
After a 20-year quiet period, new best-in-class downtown office product is debuting at a frantic pace. Around 300,000 square feet was delivered last year, more than 1 million square feet is under construction today and another 3 million square feet is actively in the works, said Brad Richter, who leads the city’s urban division and has been tracking downtown development since the late 90s.
“The developers are very positive,” Richter said. “There are a number of projects that have come online in the last year. There are much bigger projects under construction and planned. I have to trust that the developers and financiers know what they’re doing.”
The developers are building a veritable field of dreams and talking in movie quotes. If you build it, they will come, the thinking goes.
“We’re all anxiously awaiting these first takers,” Fultz said. “Everybody seems to be having the right conservations.”
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April 25, 2021 at 07:00PM
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Downtown is being flooded with fancy, new office buildings. So who will fill them? - The San Diego Union-Tribune
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