Why Office Along San Diego’s Trolley Line Is Growing

Millennials and the upcoming generation-Z have an affinity for public transit access both at home and at work, and that is good news for San Diego’s trolley friendly markets. Cushman & Wakefield’s Jolanta Campion took a closer look at the city’s most trolley friendly submarkets UTC, Downtown and Mission Valley, and found that office supply is growing in markets with access to trolley stops. We sat down with Campion, director of research for San Diego and Nevada at Cushman & Wakefield to talk about San Diego’s trolley-friendly markets, why they are important to watch and why they are growing.

GlobeSt.com: Why are you tracking trolley friendly office markets?

Jolanta Campion: 56% of the total 3.4 million residents in San Diego are 39 years or younger, which is comprised of a small portion of generation-X (which collectively spans ages 38-53), followed by millennials (ages 22-37) and generation-Z (ages 22 and younger). With a growing number of this demographic entering the workforce, it is important to study their current and future preferences for commuting to and from work. A car has long been a primary way of commuting in San Diego as 80% of residents drive alone, 11% carpool and only 4% use public transportation, according to American Community Survey. A car has outperformed public transportation not only because of its instrumental function, but also because it represents cultural and psychological values such as a symbol of freedom, independence and status.

As with any other lifestyle choice favored by generation-X and baby boomers (ages 54-72), the love for and dependence on cars is being questioned by millennials and generation-Z. Increasing costs of car ownership, including gas, insurance and parking expenses, as well as, increased hours spent in traffic each year, no longer seem attractive to younger generations as evidenced by a growing popularity of ride-sharing services (Uber, Lyft), rental scooters, bikes, trolley or any other mode of transportation that provides independence and avoids duties of ownership. Even though we don’t anticipate a significant change in trolley ridership in San Diego in the near future, we do anticipate an increase in the long term.

Fueled by demographic change and concerns over quality of life, there has been a growing interest in transit-friendly communities among planners, developers and real estate professionals, and a growing effort to identify not only the economic benefits of alternative transportation modes, but also the impact that they have on real estate prices and value retention. Walkability, higher density, a mix of uses and access to jobs and amenities play a key role in maintaining the value of real estate during the economic cycles.

GlobeSt.com: Overall, is office product in trolley friendly office markets growing?

Campion: Over the last five years—since 2013—there has been 5.1 million square feet in 51 properties added to the existing inventory countywide. UTC and Downtown claimed 30%, or 1.5 million square feet, of those new deliveries, with UTC seeing 1.2 million square feet of new deliveries and Downtown seeing 324,000 square feet of new deliveries. However, no new product was added to Mission Valley during that time period.

In Downtown San Diego, approximately 1 million square feet of class-A office space will be added to the inventory over the next 24 to 36 months. Stockdale will continue to work on the concept of converting Horton Plaza to creative office and retail, a major renovation of 1420 Kettner to a Class A, boutique office building will complete in Q1 2019, and renovations are underway or completed at several projects including 110 West A, 550 West C and 1010 2nd Ave. Additionally, Bosa is repositioning 777 Front St. to a Class A, 162,000 RSF multi-tenant project. Meanwhile, one of the most high profile new projects on the West Coast, Manchester Pacific Gateway, also broke ground over the summer.

GlobeSt.com: What has driven the new office construction in UTC?

Campion: UTC completions during this five-year stretch included La Jolla Commons II, at 415,000 square feet, One La Jolla Center, 306,000 square feet, and Illumina Campus, 419,000 square feet. Consequently, UTC has greatly emerged as an office employment hub. When the trolley begins service in 2021, 63% of UTC office space will be within a 10 minute walk of the trolley, as will one of the area’s primary amenity destinations, the Westfield UTC shopping center located in the heart of the submarket. New stations at UTC Transit Center and Executive Drive will be the primary stops for commuters. A stop at Nobel Drive will also support some office product.

GlobeSt.com: Why hasn’t Mission Valley seen as much new construction activity as the other trolley friendly markets?

Campion: Mission Valley, the region’s fourth largest office submarket, and one of the submarkets with the lowest vacancy, is centrally located with trolley service connecting Mission Valley to Downtown and East County, including San Diego State University (SDSU). Seven shopping centers are easily accessible via trolley, including two malls. Despite its central location and transit service, only 2.4 million square feet or 40% of its office inventory is within a 10-minute walk from the trolley stop— another mode of transit in addition to the trolley is required for approximately one-third of its office inventory, which lies south of Interstate 8. The Mission Valley submarket has a lot of potential as demonstrated by several developers with big plans. Most are in preliminary planning stages and will have to address concerns such as chronic traffic congestion and pedestrian non-friendliness in this central San Diego submarket. After two years of construction, AMP&RSAND, a new 339,000-square-foot two-building office complex redevelopment is planned to be completed in Q3 2018. This $65 million development will be a welcome addition to Mission Valley that is in a need of amenity rich properties to attract talent. Furthermore, the Mission Valley Community Plan update continues to progress with an anticipated approval by City Council in Q3of 2019, and the Citizen’s Initiatives for Soccer City and SDSU West will be placed on the November 6 ballot.

GlobeSt.com: How has this development activity impacted other real estate asset classes, like multifamily?

Campion: Multifamily inventory in UTC is growing. The 115-unit LUX UTC apartment building is estimated to be completed in Q4 2018 and is already over 50% pre-leased, and a 300-unit Westfield University town Center is estimated to be completed the following year in Q3 2019. Both projects are located next to the Westfield UTC shopping center and planned trolley stop.