SAN DIEGO—The San Diego market doesn't have as large a corporate sphere as Silicon Valley, L.A. or OC, which means demand is lower, keeping office rental rates down; but there are also untapped opportunities for office tenants here, JLL SVP Tim Olson tells GlobeSt.com. According to the chart below from JLL, San Diego office rents are the lowest among key California markets.

The firm found that San Diego's low rental rates enable companies to have direct access to a highly talented and educated labor pool in San Diego while saving on real estate costs. The San Diego nonfarm employment base has grown 15.8% since 2010 to 1,436,400. The expanding economy provides a strong foundation for job growth from a diverse set of industries, including tech, life sciences and business services. As companies get priced out of more expensive markets, they can turn to San Diego and its growing economy and high quality of life.

We chatted with Olson about why this is so and what the market has to offer that other Southern California markets can't.

GlobeSt.com: How do San Diego's office market rents stay lower than other key California markets?

Olson: A lot of it goes back to the cost of land and construction. Many of the markets have not only these similarities, but also cost client demand. Certain segments of L.A., San Francisco and Silicon Valley have much more substantial growth and demand, which plays into the supply/demand relationship of driving rents up when supply is lower.

We are not Silicon Valley, L.A. or Orange County. We do not have as large a corporate sphere as Silicon Valley, which reduces inventory and makes real estate more costly moving into those markets. It's an opportunity for San Diego. The difference that you don't see shown in the graph, which is an average, is that certain segments of San Diego are substantially higher than others. Del Mar Heights, for example, is more expensive than Kearny Mesa. It depends on product type as well. San Diego has some great projects and some great high-quality, class-A developments going on closer to $4.50 range, and some are on par with other markets in California.

GlobeSt.com: What does the San Diego office market have to offer office tenants that other markets can't?

Olson: One thing is the lifestyle aspect of it for employees. The makeup of San Diego is that it is a city of transplant—people who come here on vacation and end up staying. This helps with recruitment and retention. From a lifestyle standpoint, it's got some great attributes and qualities that are different from some of the other cities. Its employment base strong in the engineering field. A lot of this is coming from Qualcomm, General Atomics and UCSD. It's a strong, untapped market; the move of Google and Amazon into San Diego validates that. Those two employers entered this market for the first time. The biotech employment base, which is strong for real estate development, is strongly pulled by the biotech industry, research institutes and UCSD.

GlobeSt.com: Which office submarkets are growing the fastest in terms of occupancy?

Olson: Obviously, Downtown has seen a strong shift, especially now with UCSD opening a small campus down there and WeWork. There's been growth in the Downtown market as we started to see that trend happening over last four to five years. Downtown will continue to see growth. Also, the I-15 corridor–with General Atomics and Northrup Drummond—has seen new purchases and expanding lease footprints—the Rancho Bernardo, Scripps Ranch and Poway submarkets are seeing substantial growth because of the defense industry. Real estate should not be the largest component of an employer's costs—it's the people, so when there are opportunities for saving, many will take advantage of it. There are lots of great office options here: creative office in Del Mar Heights and Sorrento Mesa, more cost-effective office along the I-15 corridor and Rancho Bernardo—lots of diverse opportunities for companies that are more cost effective than in other markets.

Instant Insights /

Why San Diego Office is Still a Bargain for Tenants

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