SD Office Prices Still Up to 20% Below Peak

SAN DIEGO—The San Diego office market has room to grow before it has fully recovered with regard to valuation, making it attractive to investors, CBRE's Louay Alsadek tells GlobeSt.com exclusively. As we reported last week, Alsadek, Justin Parsonnet, Hunter Rowe, Chris Pascale and Mike Hoeck of CBRE represented an undisclosed seller in the sale of a two-building, 311,305-square-foot office campus at 6420 and 6450 Sequence Dr. in the Sorrento Mesa submarket of San Diego to Invesco Real Estate and San Diego-based developer Cruzan for $85.5 million. We spoke with Alsadek about the sale and what he expects to see in the San Diego office market in the near future.

GlobeSt.com: The sale of the campus at 6420 and 6450 Sequence Dr. was significant for its size in the San Diego market. What's interesting for you about this deal?

Alsadek:The project received a lot of interest and had a lot of active buyers pursuing it. It was very well received in the market because of the quality of the buildings and the campus.

GlobeSt.com: Do you expect to see more sizable office sales like this one in the market?

Alsadek:Yes, we will continue to see similar sales at this similar volume. Typically, San Diego has four to five larger deals per year, and we will continue to see that.

GlobeSt.com: Some experts are predicting that Carlsbad will be the next submarket for office growth in San Diego. What are your thoughts on that?

Alsadek:The Carlsbad market's office vacancy has continued to drop, and a lot of landlords—especially for B+/A- buildings—are feeling very positive and have started increasing rents, which is improving the value. Rents in Carlsbad have been going up, which translates to higher values. We also haven't seen any new construction or new spec construction in Carlsbad, which is really what hurt the market in the last cycle.

GlobeSt.com: What else should our readers know about the San Diego office market?

Alsadek:Even with improved market fundamentals and investment sales activity, sale prices in the majority of submarkets in San Diego County are still between 5% and 20% below peak sales prices in 2007, so buyers are very attracted to that. Also, in most markets we do not have a lot of sites available for spec development, and that's what attracts a lot of buyers: limited land supply.