Downtown Construction Nears Record Levels

by | Aug 16, 2016 | The San Diego Union-Tribune

If the crop of construction cranes downtown signals boom times are back, take a look at Civic San Diego’s latest count.

The downtown planning agency reports 27 projects under construction with many more approved or planned.

“Looking back historically, it’s probably close to our busiest time,” said Brad Richter, assistant vice president for planning.

However, he said, applications for new projects are not as strong as last year.

“We’re not sure if there’s an actual slowdown and a reassessment of supply coming on board … or not,” Richter said.

He said residential projects remain “pretty strong” but he has not yet seen any major shift from apartments to for-sale condos.

Historically, office construction was the biggest category in downtown development but in recent years, that category has seen very little interest.

Richard Gonor, executive vice president at the JLL commercial real estate brokerage, said a number of office developers are interested in starting projects but they are to land big leasing deals before breaking ground.

“We’ve definitely seen a pickup in office demand,” he said, but most interest has come from small startups that usually commit to only three- to five-year leases for space within the next nine months.

To start construction on a major office building, developers typically need to attract established “credit-worthy” tenants willing to sign 10-year leases and will wait 18 to 24 months before they can move in.

Meanwhile, the best space downtown is spoken for and interest is shifting to so-called “Class B” buildings that are typically older and less well located than “Class A” buildings.

Gonor is one of the brokers on one of those Class B buildings, the Hamilton Fine Foods building at Sixth Avenue and C Street. Built in 1928, the historically designated site with an exterior frieze of fruit and vegetables is getting a new roof and elevator. Gonor said he has heard from restaurants and co-work office users.

“We’re hopeful we’ll have a tenant for it by the end of the year,” he said.

Kris Michell, president and CEO of the Downtown San Diego Partnership business group, acknowledged that speculative office development has yet to take place. But she said a large, unnamed company is thinking of moving downtown into as much as 300,000 square feet of new space — more than enough to justify a new building.

“Just the fact that we are in discussions I think is very good,” she said.

On the residential front, the newest building to be completed is another historic property. The former Hotel Churchill at Eighth and C, owned by the San Diego Housing Commission, is reopening as an affordable apartment project for veterans, foster youth and ex-convicts facing possible homelessness.

Project manager Colin Miller said last-minute details are being attended to before the first residents move in over the next few days.

According to CivicSD’s project update, the active projects include 4,401 apartments and condos; 1,081 hotel rooms; 174,000 square feet of retail; and 777,000 square feet of government space — the new state courthouse and a bayside new city fire station.

Nine projects are expected to be completed this year, including the 317-room Pendry Hotel in the Gaslamp Quarter, the 480-unit Rey apartment project on B Street and the 21,000-square-foot Airborne San Diego parachute simulation ride at 14th Street and Imperial Avenue. That total compares with 10 completions last year and, of 23 in 2004, the highest since 2001.

There are also 29 projects approved but not yet under construction and 12 awaiting approval.

The running total from 2001 through mid-2016 includes 15,593 residential units, 4,447 hotel rooms, 1 million square feet of retail space, 1.2 million square feet of office space and 7,303 public parking spaces.

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