San Diego Office Property Sales Reach Decade Highs

San Diego Office Property Sales Reach Decade Highs

After a brisk third quarter in which more than $880 million in San Diego office sales were recorded, 2018 is shaping up as another big year for office property sales, on pace to catch the real estate cycle’s peak of $2.2 billion, which was reached in 2015 and 2017.

The office sales tally through the third quarter is $1.7 billion, compared to $1.6 billion for the same three-quarter period last year. Private capital accounts for almost 85 percent of total investment this year, while last year it accounted for 50 percent.

In another key difference, office sales in 2017 were dominated by major buildings in downtown San Diego. This year, however, one of the San Diego area's largest landlords,

The Irvine Company, has been focused on acquiring a number of suburban office assets.

Irvine Company's first investment of the year was its $105 million acquisition of Gateway at Torrey Hills in San Diego's Del Mar Heights/Carmel Valley submarket. Then, the firm expanded its footprint in University Town Center by 300,000 square feet after buying La Jolla Reserve in September for $180 million, giving it ownership of almost 50 percent of the submarket’s office inventory.

Irvine Co. continued its buying spree by returning to Del Mar Heights/Carmel Valley in October to purchase the 235,000-square-foot Paseo Del Mar office park for $166 million. All told, Irvine Co. acquired $451 million in San Diego office properties in 2018.

In September, Singapore-based Ascendas-Singbridge Group branched out to San Diego's suburbs with its acquisition of an 11-building office portfolio in Sorrento Mesa and Rancho Bernardo. Spread out at the Innovation Corporate Center and Pacific Corporate Center with a notable cross section of tech firms, Starwood Capital Group sold the portfolio for $558 million. The sale was one of the largest foreign investments in the San Diego office market in years.

The third quarter accounted for the highest quarterly tally of office property sales so far this real estate cycle with 137 transactions. San Diego's office pricing has risen for the fourth year in a row, and it's now at the highest point in more than a decade at an average of $334 per square foot. Average capitalization rates for office transactions have settled toward 6 percent.

In San Diego, JP Morgan has handed out the most loans in 2018, although the total value is only $24 million to date. Bank of America, Wells Fargo and The Northern Trust Company have all issued multiple office loans this year, although none have exceeded $50 million. Increasing, the loan-to-value ratio continues to shrink, with many deals now approaching 50 percent.

Article By: CoStar Market Insights | October 31, 2018

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