Sorrento Mesa Top Office Market This Cycle

Office users have flocked to the Sorrento Mesa office market this cycle. According to research from JLL, Sorrento Mesa has lead leasing activity in San Diego this cycle with 6.9 million square feet in leasing volume since 2013. That accounts for 536 total transactions with an average deal size of 12,846 square feet. The activity has been consistent with an average of 1 million square feet of activity per year since 2013, with the market already surpassing 1 million square feet in leasing activity year to date.

“Sorrento Mesa is one of the most dynamic submarkets in all San Diego for the variety of companies located here,” Tim Olson, a managing director at JLL, tells GlobeSt.com. “A bulk of the companies is related to the innovative sectors such as life science and technology. Since 2013 Sorrento has seen 60% of leasing combined between the two industries. Many of the other tech and life science companies want to be centrally located as well as nearby other innovation companies.”

Lab and research companies have been a major driver of activity in the market. Olson says that there has been an increase in lab conversions in recent years, and nearly all of the office space in the market has been converted. “Much of the commercial real estate in Sorrento Mesa has been converted to either creative or lab in recent years. Since 2015 about 550,000 square feet has been converted to lab and 500,000 square feet to creative office from traditional office,” he says. “An example of this is the most recent Peak at Wateridge where the 180,000-square foot property is currently being converted to lab and is already 56% leased.”

UTC/Eastgate has also seen substantial leasing activity this cycle, accounting for 6.3 million square feet of total leasing volume since 2013. Some tenants have moved to UTC, a neighboring market of Sorrento Mesa, for lower rents. “Tenants are feeling the pinch from other neighboring submarkets such as Del Mar Heights and UTC that have average asking rents as high as 25% to 40% higher,” adds Olson. “Sorrento Mesa has already seen 1.1 million square feet of new and renewal leasing half-way through 2018. This year the submarket has already surpassed its five-year average that is approximately 1 million square feet.”

While Sorrento Mesa and UTC are winning the volume race, Mission Valley is winning for growth. The market has accounted for 3.3 million square feet of leasing volume since 2013, but a total of 683 transactions—the most in the Greater San Diego market. It also has one of the lowest vacancy rates in San Diego at 7.4%. “Mission Valley has a “live, work, play” environment, and along with its central location, continues to attract a large variety of corporate tenants,” explains Olson. “The average size tenant countywide in the 5,000 square feet range and much of Mission Valley’s office product caters to the smaller tenant. The Trolley Line and direct access to primary freeway arteries provide access to the class-A and -B buildings making it convenient for back office tenants to commute from either South County or East County.”

There has been an increase in renovation and conversion activity throughout San Diego, and it is a good sign of the healthy activity to come. Olson says that current modernization projects include Mission City Corporate Center, 1450 Frazee and 404 Camino del Rio South. “Small to mid-size businesses will continue to see the highest demand and we expect the market dynamics to be stronger and more vibrant,” he says. “The industries to keep an eye will still be aerospace/defense, technology, and life science who will continue to be very active. San Diego is one of the highest paid regions for Department of Defense spending and Venture Capital funding for Life Science continues to be robust. As these industries grow it will continue to attract the highly skilled talent pool.”