Qualcomm Layoffs Likely to Take Toll on San Diego Real Estate
Qualcomm Layoffs Likely to Take Toll on San Diego Real Estate
By Lou Hirsh, San Diego Market Reporter CoStar
San Diego-based Qualcomm Inc. plans to
lay off 1,500 California workers in June, and if history is a guide, the move
will most likely also lead the global chipmaker to reduce its real estate
footprint.
Qualcomm recently notified state and local officials that it plans to cut 1,231 jobs in San Diego, along with 269 at its San Jose and Santa Clara, CA offices, effective in mid-June. San Diego’s largest private employer, with 13,000 local workers before the cuts, is aiming to reduce costs and otherwise streamline operations after recently fending off a takeover attempt by Singapore-based rival Broadcom Inc.
Local brokers note that Qualcomm currently occupies more than 4.2 million square feet in 33 office and industrial buildings across San Diego County. Most of the space is owned by the wireless chipmaker, and the bulk of it is located in the Sorrento Mesa area.
That real estate is likely to be just a portion of the ultimate potential economic fallout from the layoffs in San Diego, and the exact impact in square footage cutbacks is difficult to predict. However, the last time Qualcomm cut jobs – 4,500 companywide in 2015, including about 1,300 in San Diego – the results included the company’s departure from more than 1 million square feet of space, most of it leased.
Some space vacated by Qualcomm at that time in University Town Center (UTC) was quickly filled by other tenants. Property owner Alexandria Real Estate Equities Inc., for instance, promptly converted emptied former Qualcomm space in UTC into lab space and leased it to pharmaceutical giant Eli Lilly.
In buildings that it owns, especially in the older Sorrento Mesa area, Qualcomm’s options for disposing of space in the current market could be more complicated, and unfold more slowly.
David Marino, executive vice president at San Diego-based brokerage firm Hughes Marino Inc., said Qualcomm rarely if ever sublets space that it owns to other tenants, due to security concerns related to companies mingling within the same campus. Even in cases where a solo tenancy is possible in a current Qualcomm campus, the company would be more likely to sell off unneeded space, rather than rent it out.
“Qualcomm doesn’t want to be in the landlord business,” Marino said, adding that one upside for Qualcomm, if it chooses to sell off some buildings, is that the market remains flush with regional and national investors looking to invest parked money in well-located office and industrial properties.
“It’s not all doom and gloom,” Marino added, noting that more of the former Qualcomm space could be converted for use by expanding industries such as life science, which are finding good local space in short supply.
However, there are challenges for Sorrento Mesa, where brokers note that much of the leased office space returned to the market by Qualcomm in 2015 has yet to be backfilled. In recent years the area has lost tenants to neighborhoods such as UTC, where landlords including Irvine Co. have lured them away with newer facilities, temporary rent discounts and other incentives.
Sorrento Mesa also has perceived drawbacks in the eyes of current and potential new tenants, such as chronic traffic congestion that keeps local streets and nearby freeways clogged during daily rush hours.
The latest CoStar Market Analytics data shows Sorrento Mesa’s office vacancy at 13.6 percent and its availability rate at 15.2 percent, both well above countywide rates of 9.9 percent for vacancy and 12.8 percent for availability.
Mike Labelle, senior vice president in the San Diego office of Savills Studley, said he’s waiting to see how Qualcomm chooses to re-allocate space post-layoffs, before judging the overall impact on Sorrento Mesa metrics. For instance, if Qualcomm workers occupy between 200 and 300 square feet per employee, the space impact from job reductions could total between 246,000 and 370,000 square feet in San Diego.
That’s a miniscule portion of a Sorrento Mesa submarket that has nearly 10 million square feet of offices and another 10 million square feet of industrial space, although Qualcomm is by far the largest tenant there.
Ultimately, the brunt of future impact would fall on property owners rather than Qualcomm itself.
“If I were a landlord in property that Qualcomm is leasing right now, I’d be sleeping with one eye opened,” Labelle said. “I’d be a little nervous.”
A Qualcomm spokeswoman said the company would not be commenting on real estate plans or other economic impacts, beyond a statement issued in the wake of the announced layoffs.
Qualcomm recently notified state and local officials that it plans to cut 1,231 jobs in San Diego, along with 269 at its San Jose and Santa Clara, CA offices, effective in mid-June. San Diego’s largest private employer, with 13,000 local workers before the cuts, is aiming to reduce costs and otherwise streamline operations after recently fending off a takeover attempt by Singapore-based rival Broadcom Inc.
Local brokers note that Qualcomm currently occupies more than 4.2 million square feet in 33 office and industrial buildings across San Diego County. Most of the space is owned by the wireless chipmaker, and the bulk of it is located in the Sorrento Mesa area.
That real estate is likely to be just a portion of the ultimate potential economic fallout from the layoffs in San Diego, and the exact impact in square footage cutbacks is difficult to predict. However, the last time Qualcomm cut jobs – 4,500 companywide in 2015, including about 1,300 in San Diego – the results included the company’s departure from more than 1 million square feet of space, most of it leased.
Some space vacated by Qualcomm at that time in University Town Center (UTC) was quickly filled by other tenants. Property owner Alexandria Real Estate Equities Inc., for instance, promptly converted emptied former Qualcomm space in UTC into lab space and leased it to pharmaceutical giant Eli Lilly.
In buildings that it owns, especially in the older Sorrento Mesa area, Qualcomm’s options for disposing of space in the current market could be more complicated, and unfold more slowly.
David Marino, executive vice president at San Diego-based brokerage firm Hughes Marino Inc., said Qualcomm rarely if ever sublets space that it owns to other tenants, due to security concerns related to companies mingling within the same campus. Even in cases where a solo tenancy is possible in a current Qualcomm campus, the company would be more likely to sell off unneeded space, rather than rent it out.
“Qualcomm doesn’t want to be in the landlord business,” Marino said, adding that one upside for Qualcomm, if it chooses to sell off some buildings, is that the market remains flush with regional and national investors looking to invest parked money in well-located office and industrial properties.
“It’s not all doom and gloom,” Marino added, noting that more of the former Qualcomm space could be converted for use by expanding industries such as life science, which are finding good local space in short supply.
However, there are challenges for Sorrento Mesa, where brokers note that much of the leased office space returned to the market by Qualcomm in 2015 has yet to be backfilled. In recent years the area has lost tenants to neighborhoods such as UTC, where landlords including Irvine Co. have lured them away with newer facilities, temporary rent discounts and other incentives.
Sorrento Mesa also has perceived drawbacks in the eyes of current and potential new tenants, such as chronic traffic congestion that keeps local streets and nearby freeways clogged during daily rush hours.
The latest CoStar Market Analytics data shows Sorrento Mesa’s office vacancy at 13.6 percent and its availability rate at 15.2 percent, both well above countywide rates of 9.9 percent for vacancy and 12.8 percent for availability.
Mike Labelle, senior vice president in the San Diego office of Savills Studley, said he’s waiting to see how Qualcomm chooses to re-allocate space post-layoffs, before judging the overall impact on Sorrento Mesa metrics. For instance, if Qualcomm workers occupy between 200 and 300 square feet per employee, the space impact from job reductions could total between 246,000 and 370,000 square feet in San Diego.
That’s a miniscule portion of a Sorrento Mesa submarket that has nearly 10 million square feet of offices and another 10 million square feet of industrial space, although Qualcomm is by far the largest tenant there.
Ultimately, the brunt of future impact would fall on property owners rather than Qualcomm itself.
“If I were a landlord in property that Qualcomm is leasing right now, I’d be sleeping with one eye opened,” Labelle said. “I’d be a little nervous.”
A Qualcomm spokeswoman said the company would not be commenting on real estate plans or other economic impacts, beyond a statement issued in the wake of the announced layoffs.
The statement said, in part:
A workforce reduction, such as this one, affects not only
those employees who are part of the reduction, but their families, co-workers
and the community. We recognize this and have offered affected employees
supportive severance packages to reduce the impact of this transition on them.
We first evaluated non-headcount expense reductions, but we concluded that a
workforce reduction is needed to support long-term growth and success, which
will ultimately benefit all our stakeholders.
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