Does Trolley Access Mean More Leasing Activity?

Office investors have favored—among other characteristics that attract millennials—assets that have access to public transit. However, public transit hasn’t necessarily translated to increased leasing activity. According to research from Cushman & Wakefield, the three markets with the most access to public transit ranked third, sixth and eighth for leasing activity since the beginning of 2017. Downtown ranked third with 923,000 square feet leased; Mission Valley came in sixth with 872,000 square feet leased; and UTC came in eighth with 780,000 square feet leased.

“There is currently no empirical evidence to support the claim that properties near public transit have a faster absorption period than properties that are not,” Derek Hulse, managing director at Cushman & Wakefield, tells GlobeSt.com. “However, given recent studies on the transportation trends of the emerging workforce, developers are keenly aware and interested in developing near public transportation. Furthermore, we do consistently hear from tenants wanting to be near major public transportation points—a common question during tours.”

Downtown San Diego is the only office submarket with total access to public transit, however, so it’s ranking at third is significant. “Downtown is the largest office submarket with 9.8 million square feet and is uniquely the only submarket with 100% of its office inventory located within a 10-minute walk of a trolley station,” says Hulse. “For a variety of reasons, alternative modes of transportation are becoming more attractive for downtown workers. In Mission Valley, 40% or 2.4 million square feet of its office inventory is accessible within a 10 minute walk of a trolley station, while in UTC, 3.4 million square feet or 63% of its office space will be located within a 10 minute walk once the trolley extension begins operations in 2021.”

While the three submarkets with the most access to public transit don’t see the most leasing activity, all three are healthy submarkets with a vacancy rate below the countywide vacancy rate of 10.8%. Additionally, all have positive year-to-date occupancy gains. “Overall, these submarkets have experienced steady leasing activity and healthy market conditions, a trend that is expected to continue, says Hulse. “Downtown and Mission Valley are currently the only two large office submarkets in the County that offer convenient access to trolley service, and we anticipate to see a positive change in UTC when the trolley begins operation in 2021, resulting in a compound effect of connecting three key office submarkets.”

While trolley access didn’t necessarily translate into more leasing activity, it did translate into higher investment sales prices. “UTC and Downtown have some of the highest average sales prices per square foot in the county at $476 per square foot and $354 per square foot, respectively,” says Hulse. “These submarkets are only out priced by Del Mar Heights—where prices are driven by excellent location and high leasing demand, and the North Beach Cities—where pricing is driven by excellent location near the beach, low supply, and small unit sizes.  The average price per square foot in Mission Valley falls in the middle of the pack at $227 per square foot.  One factor contributing to pricing in Mission Valley is the lack of high quality real estate transacted in 2017 through midyear 2018, as only class-B and -C product sold during this period.”