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Part 1 of 2

SAN DIEGO—The desire for refreshed workspaces with modern flair and contemporary amenities is stronger than the need for true creative space in all San Diego submarkets, local Colliers International experts tell GlobeSt.com. In part 1 of a two-part story, we spoke exclusively with the firm's Andy La Dow, Colliers' new regional managing director and downtown office expert; Chris Williams, North County office expert; and Derek Hulse, Central San Diego office expert, about the trends they're seeing in the San Diego office market.

GlobeSt.com: What do you find most intriguing about the San Diego office market?

Hulse: One of the things I find promising about the market is I still think we have a lot of growth and opportunity here. Investors who have been priced out of other markets like Seattle, San Francisco and L.A. are looking to San Diego now. We have a diverse economy and relatively inexpensive real estate compared to other major markets. Our recovery is still to come with redevelopment or repurposing of class-A or –B office projects, and when rents justify it and depending on the availability of land, ground-up developments. There's more institutional money here than in the past looking at deals, and that's encouraging. San Diego has a lot of intellectual capital here and a great trajectory for growth in the next 10 to 20 years.

One market I focus on is Kearny Mesa, and it's a great central submarket. It's bound on all sides by freeways, and it tends to be a hodgepodge of retail and back-office space, headquarters buildings and apartments. There's nothing too glamorous or sexy about it, but it has a .5 floor-area ratio. There have been discussions at the community level of updating that FAR, especially with the concept of a city of villages and urban infill—you need to allow that density. If you do that in the immediate future, you unlock all sorts of value in buildings because then you can build at 1 FAR. That's where I can see real development begin.

La Dow: Derek is spot-on with how FAR will change the game. The office workplace has changed so dramatically in the past few years. Office buildings throughout San Diego are mostly full. We're out of class-A space, and we are finding that we need to update buildings that are obsolete and completely renovate them into workspaces with open community spaces and amenities throughout the site to create the collaborative office environments that are in high demand. If a property is truly dysfunctional, it will be scraped, but if it has functionality, it will be repurposed.

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Hulse: Last year, we sold a building in Kearny Mesa at 9797 Aero that had been a build-to-suit for the FBI. It was not very functional, so we put it out to market and sold it to Bixby Land Co. It's going to be repurposed into a boutique office environment in a market where people said it would never be successful. It's currently in construction, and Bixby has invested $10 million in this project for a total repurpose. The response has been incredible; they're asking above-market rents, and there's been a lot of activity. Tenants are negotiating on full-floor space. There's lots of natural light, a contemporary design, big open floor plates—they're only leasing full floor plates. It's Kearny Mesa's first true repurposed project. This is just the beginning of that phase in those markets. You're starting to see some of that in Carlsbad and Sorrento Valley, but this is the first for Kearny Mesa.

Williams: All the stuff we're reading about in these central markets, North County is following suit. In some little pockets in North County, these trends have been prevalent for a while. There's been an evolution and a change as buildings and commercial product that hasn't been constructed are having to be repurposed and adapted to meet the changing needs of employers. In North County, there is new spec construction going on on a number of projects. We're seeing new spec industrial development and the repositioning of industrial to office in Carlsbad with MAKE and in Rancho Bernardo on the I-15 corridor. Everybody in the market is starting to do that same conversion. Some markets are beginning to do this, but North County is hitting it on all cylinders.

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A lot of what's being discussed are outdated plans. San Marcos revised its general plan and went through a number of community workshops to dive into what the community wanted. They came up with a new plan for Cal State San Marcos involving 200 acres of mixed-use urban village that will be the downtown of the Highway 78 corridor, a North County suburban market. The motion for North City was unopposed, and it was unanimously adopted by the City Council. This offers an alternative to everyone running toward Downtown. There will be office, residential and retail under construction. It's a very forward-thinking project, it will be on a light rail adjacent to the highway—a walkable, urban community that checks all the boxes of what Millennials are looking for, but in North County: they can live, work, play and educate.