New Hotels & Offices Planned in High-Demand Carmel Valley Community

San Diego’s coveted and posh Carmel Valley neighborhood is set to add at least two hotels totaling 250 rooms, almost 300,000 square feet of offices and other public spaces to a recently growing list of commercial projects planned or underway in the high-demand area.

San Diego’s financial and technology industries have been growing their presence over the past decade in Carmel Valley, spanning the area of northwestern San Diego where I-5 meets state Route 56. The increased business activity is helping to increase the need for new homes and hotels while raising demand and prices for office and retail space in the process.

Among the newest projects seeking to cater to the growing population is a 127-room Hyatt Place hotel. A San Diego hearing officer recommended the city approve plans for the five-story hotel, on a 1.4-acre site that would also include an outdoor pool and spa near Interstate 5. Representatives of the development entity, listed as 3510 Valley Centre Drive LLC, did not immediately return requests for comment, but this hotel, like others already operating in that neighborhood, is likely to see high use by business travelers and meeting planners.

Earlier this year, the Carmel Valley Community Planning Board, which advises City Council, approved plans by developers Fred and Hunter Oliver for a new mixed-use project called Costa Azul. Located next-door to the proposed Hyatt Place project, it is planned to include a six-story, 123-room Element by Westin hotel, with a four-story office building, a 5,400-square-foot restaurant and underground parking garage, plus parks and other public open spaces.

These hotels could join the multiple office and mixed-use projects underway already in Carmel Valley.

The largest of those is Los Angeles developer Kilroy Realty Corp.'s $650 million One Paseo mixed-use development, in Carmel Valley’s Del Mar Heights area, where the developer has already lined up several retail, dining and office tenants well ahead of the 23-acre project’s first-phase completion expected by the middle of the year.

A CoStar Market Analytics report indicates Del Mar Height’s average office rent has surpassed its prerecession peak and is now at $3.84 per square foot monthly, well above the countywide average of $2.67. Brokers have noted that lease rates in some of the newer office projects are already heading north of $5 per square foot, making it an attractive market for landlords and developers.

In its own recent report projecting 2019 trends, brokers at Jones Lang LaSalle, known as JLL, noted that One Paseo is paving the way for further office rent increases in the neighborhood, estimating that project is already commanding rates likely to reach $5.50 and higher during its current pre-leasing stage, which could create ripple effects for neighboring properties and areas.

The developer has previously said One Paseo's almost 100,000 square feet of retail and the first of its 608 residential units are planned to be complete by mid-year and are expected to be followed over the next year by the construction of 280,000 square feet of offices.

Local brokers have noted that competitive renovations made recently by several landlords in Carmel Valley, along with new amenities coming to One Paseo including apartments and several high-end restaurants, are likely to further grow the neighborhood's office rent premium relative to the overall San Diego region, which is currently around 50 to 60 percent.

Kilroy has other new office construction and redevelopment projects in the works for that neighborhood. In the past 18 months, rival Irvine Company, the San Diego region’s biggest office landlord, has been scouting new purchases after making three major acquisitions totaling more than $432 million in Del Mar Heights-Carmel Valley area.

Alexandria Real Estate Equities Inc., San Diego’s largest life science landlord but not previously a major player in Carmel Valley, recently acquired a former farmhouse property next-door to the popular Del Mar Highlands Town Center retail property, and the company is in talks with the city on potential new mixed-use efforts in that and other neighborhoods.

Article Via CoStar

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