SAN DIEGO—Skyline office buildings contain the most expensive office space to rent Downtown, according to a new report from JLL. The gap between lease rates in skyline vs. non-skyline buildings Downtown is more than 10%, the report says.

Average skyline rates in the first quarter were $29.66 per square foot compared to $26.94 per square foot in non-skyline buildings Downtown. This gap between skyline and non-skyline space represents a notable shift from historical spreads: 10 years ago, the difference was just 6.1%.

According to Bess Wakeman, EVP at JLL in San Diego, “The flight to quality in earlier recovery years, coupled with an improving economy today, have led to significant supply constraints in the county's highest-quality office buildings, and the rent gap has widened significantly.”

Unlike many cities, however, some San Diego suburban submarkets continue to command higher office lease rates than Downtown, including Carlsbad, Del Mar Heights, Rancho Bernardo, Sorrento Mesa, Torrey Pines, UTC and Mission Valley, according to the report. As compared to just San Diego's Downtown skyline buildings, however, only Del Mar Heights, Sorrento Mesa, Torrey Pines and UTC still command higher lease rates.

JLL also reports that nearly 75% of the new development nationwide is concentrated in only nine cities, which means most tenants will have little negotiating leverage in their office agreements for the time being, including those in San Diego. However, Downtown San Diego does have several major office-construction projects pending, and if lease rates continue to climb, those developers will be able to justify new construction costs.

Wakeman tells GlobeSt.com, “From east to west, there are many development opportunities in Downtown San Diego. East Village and the I.D.E.A. District within it are prime for office development, with the area entitled to redevelop and build as much 1 million square feet of office space. There are also infill redevelopment opportunities in the Financial District and at some point, the Navy site along the western border of Downtown will be developed by Manchester Financial.”

On the investment side, the report also says San Diego's skyline buildings are being pushed closer to peak prices due to economic growth, business expansion and improving market fundamentals, with year-over-year pricing gains of 10% or more, according to JLL.

Other interesting facts that came out of the report: Negotiation leverage between tenants and landlords in skyline San Diego buildings is neutral but is expected to be landlord favorable in 2016 and 2017, and countywide, class-B buildings are gaining in popularity due to increasing lease rates in class-A, but also because users are starting to put more importance on creating a custom space than securing a certain address—especially within the tech sector.

Also, foreign investment, while increasing in the skylines of gateway cities like New York, Chicago and San Francisco, does not currently factor into San Diego's skyline investment activity because lower building values as compared to major gateway cities make it less efficient for foreign investors to deploy larger sums of capital of greater than $100 million. Bob Prendergast, managing director for JLL's San Diego capital markets team, says, “The size of investment in San Diego tends to be less than $100 million. Many of the international investors are looking to invest larger sums of money and the majority of the individual property sales in San Diego are less than $50 million.” During 2014, four international buyers entered the San Diego market—one from Turkey, two from Canada and one from Mexico—but the acquisitions were made countywide and not in the skyline, JLL reports.

However, Lynn Chapelle, managing director for JLL San Diego's capital markets team, adds, “The pace of investing in San Diego has remained consistent year-over-year from 2014 into 2015, and sentiment remains very positive.”

As GlobeSt.com reported last month, waterfront real estate, ocean views, a modern skyline and a diverse group of industries are just a few of the reasons why Downtown San Diego has a lot to offer, Bosa Development's director of sales and marketing Bemi Jauhal told us exclusively. As the firm, one of the most-active real estate developers in Downtown San Diego with several projects in the works, prepares for “RETHINK Downtown: Behind San Diego's Skyline,” an interactive, experience-based exhibition and speaker series this summer, we spoke exclusively with Jauhal to find out more about the project, how San Diego fits in with the nationwide urbanism trend and the company's condo-naming contest.