Office Construction: Developers have focused on Build-to-Suits
CoStar Market Insights: Office Construction Far Short of Last Cycle
Developers Have Focused on Build-to-Suits, Conversions
Office construction has a long way to go before returning to the dizzying heights that San Diego faced pre-recession, when the office market was regularly experiencing more than 2% annual inventory growth, and for several years between 2004 and 2008 was enjoying more than 5% of inventory under construction.
It wasn’t until 2010 that the spigot largely turned off for ground-up office development. San Diego has not received an injection of even 1% of inventory in any year this cycle. With geographic constraints, escalating building costs - upwards of 15% in the last 18 months - and difficulty navigating the permitting process, speculative office construction has largely bypassed San Diego of late.
One prominent example is Amp&rsand in Mission Valley. The former Union-Tribune property is in the midst of a $35 million makeover that will convert the buildings into creative office space, bringing some much-needed new inventory to this central San Diego area that can take advantage of trolley stops, arterial freeway access and proximity to the beach and to Downtown.
Otherwise, build-to-suits are likely to continue as the development du jour. Among the largest projects in the region are ViaSat, a 280,000-square-foot expansion to its campus in Carlsbad; Takeda is taking a 150,000-square-foot build-to-suit in UTC after moving out of 80,000 square feet in neighboring Torrey Pines; and MedImpact is building a 160,000-square-foot expansion to its headquarters at The Watermark in Scripps Ranch.
By comparison, the largest ground-up speculative project is a 60,000-square-foot building at Makers Quarter in the Downtown submarket.
While that might help reign in rising vacancies, it does limit the San Diego region's exposure to tenants who might be interested in expanding or relocating to the metro. Instead, owners have turned to renovating existing buildings to accommodate today’s office users.
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