Investors Show Renewed Interest in Suburban Office

Office investors—including institutional capital sources—are showing a renewed interest in suburban office products. A strong local economy and with incentives from the recent tax reform are driving an expanded interest in office product. This is great news for the San Diego office market, which has a large supply of suburban office product. While sales volume has yet to return to the levels in the prior peak, this renewed demand should fuel sales activity through the end of the year.

“Similar to the vast majority of major US markets, trading volume in San Diego County, where 86% of the office inventory is located in the suburbs, has been sluggish over the past few years as capital has been focused on CBD opportunities and other asset classes–namely industrial and multi-family,” Brad Tecca, executive director of capital markets at Cushman & Wakefield, tells GlobeSt.com. “While overall office trading volume in San Diego continues to lag behind past peak levels, positive economic indicators in addition to new policies implemented by the current administration—namely tax cuts—has resulted in renewed interest by investors in suburban office opportunities.”

Interest in suburban office has already started. Admiral Capital has acquired the Balboa Executive Center, a five-story, 120,992-square-foot class-A office building, at strong pricing that exceeded expectations. “What we questioned was how deep of an investor pool would we be able to generate. At the end of the process, we were extremely pleased as we were able to generate double-digit offers, which resulted in an extremely competitive bidding situation,” Tecca, who brokered the deal on behalf of the seller, explains. “This was the first suburban office offering where we received double-digit offers in quite some time and we believe this is a sign that for the right asset in the right location institutional investors are back for quality suburban office product.”