OPTIMISM AND ITS EFFECTS ON THE MARKETS

What happens when landlords feel comfortable enough to shake up the occupancy status quo by introducing new square footage into the markets?

Ask several people if they are optimistic about the economic outlook in San Diego and you may get different answers. One group that seems very confident include some of the county’s most successful developers/landlords like, the Irvine Company, Kilroy Realty Corporation, and CM Management, Inc. These three companies have development projects currently under construction or proposed in the near future.

Landlords are confident the markets can absorb a large amount of new and expensive office space. Irvine Company’s speculative project, One La Jolla Center in UTC, is being built in part to disrupt the status quo of occupancy rates. The occupancy rates in their portfolio of 11 of the most prestigious addresses in UTC were very high. In order to promote movement within the market they chose to introduce One La Jolla Center, an approximately 305,000 sf class A office building. This will surely shake up the market as the project is completely modern, LEED certified and will be expensive, with rents above $4.00/sf. The Irvine Company is confident there are businesses in the area that are willing to pay a premium to be in the newest, most advanced building in the market. That is a strong vote of confidence for the area’s economy. Kilroy Realty Corporation has a large presence in Del Mar Heights. They are also backing their confidence in the economy by opening up their wallet. Currently under construction is the Heights Del Mar (building 3) an approximately 75,000 sf of class A office. Also on their books is the One Paseo project in Del Mar that will eventually add another approximately 450,000 sf of class A office space. One Paseo is currently mired in public debate so the commencement date of construction is questionable at this time. CM Management, Inc. is getting into the mix as well with MAKE in Carlsbad. The plan is to demolish an existing industrial building and construct a very modern 177,000 sf of class A office space along Avenida Encinas.

These projects take several years to complete which means landlords had the confidence and vision to pull the trigger years ago. They are making a bet on San Diego’s economy and future.

How does this optimism effect the markets? Picture a Christmas snow toy where when you shake it up the effect is of snow falling onto the scene in the ball. When you “shake-up” the market by adding large amounts of new square footage, tenants will begin to move around. The new space will also be the most expensive in the market which will eventually cause upward pressure on rents in all buildings in the same class. Successful high image companies will inevitably want to move into the “latest and greatest” space in the market even at premium rental rates. That leads to vacancies in the buildings they just left which may be high image but older. The older space is also cheaper relative to the new space. That provides an opportunity for another company to occupy high image space (albeit older) at relatively cheaper rents. As landlords lose tenants to newer buildings they may become more motivated to offer concessions to fill their new vacancies. Again this could benefit a company looking to upgrade their image. This movement theoretically ripples throughout the market as companies take advantage of upward migration throughout all classes of buildings and attempt to improve their office space.

If you’ve been thinking about upgrading your company’s image now is good time to look into a move. Botticelli Realty Advisors represents tenants only. We can help you understand market dynamics caused by new square footage on a market and help you take advantage of opportunities. If you would like to discuss your situation in more detail please feel free to contact me at 760-445-9908, or my partner Vince Botticelli at 619-851-3556.

Thank you and I look forward to speaking with you all soon.

Brian Lukacz

THE CHANGING OFFICE ENVIRONMENT

I recently read an article on the real estate website, GlobeSt.com, written by John Salustri. In it, he discusses the changing office environment. There were several points made in the article I felt would be good for you to know. Commercial space is trending away from the traditional office environment to more open, collaborative work spaces. This phenomena is not necessarily just in the tech world either, many types of businesses seem to moving in this direction. Are you thinking about changing your office space with your next lease? Do you want to try something different to increase productivity or just to modernize the feel of your work environment? If so, here are a few key points from the article to keep in mind as you think about the best work space for your company:

• think ahead; build as much future-tech into your space as possible, including a technological backbone that allows maximum flexibility for future adaptation

• even though telecommuting is still in vogue, a trend is for employees to come back to the office environment, balancing the ability to work remotely with the greater need for collaboration and interaction

• think about the various departments in your company, do some want a more open collaborative environment, and do others still look for a more traditional space? Some businesses may need both

• the office footprint per employee continues to shrink, instead being replaced by larger, more open space

• changing demographics of the work force; the millennials are more willing to embrace technology and have no frame of reference for the traditional status of the private office, whereas the older workforce may still be more comfortable with an office

It is definitely an interesting read that will get you thinking about how you want to conduct your business in the future, and how that will impact your office environment. Click on the link below to read the entire article. As usual, if you have questions about your current office lease or would like to discuss how to make yours a more productive office environment, please do not hesitate to contact me at 760-445-9908760-445-9908.

Thank you,

Brian Lukacz Continue reading