Downtown: $6.4B development juggernaut
If you’ve noticed a few more construction cranes on the downtown skyline, your eyes don’t deceive.
San Diego’s Centre City has more than $6.4 billion in 63 projects under construction, approved or under review — an amount equal to more than 40 percent of the 1,600-acre community’s entire $15.5 billion in assessed valuation, according to Civic San Diego, the downtown planning agency, and the county assessor’s office.
And that doesn’t count projects for which there is no estimated value provided or big projects in the future, such as a convention center expansion, downtown stadium and a new city hall or the redevelopment of Seaport Village and Horton Plaza shopping center.
“It’s pretty exciting,” said Kris Michell, CEO of the Downtown San Diego Partnership business group. “I think development activity is booming and I see that trend continuing in 2016.
Projects nearing completion are a dual-hotel building at Lane Field at the foot of Broadway; a $555.5 million state courthouse opening next year at Union and C streets; and the 41-story Pacific Gate condo tower south of the Santa Fe Depot, where prices are expected to begin at about $1 million each.
The developer of that condo tower, Nat Bosa, is the most bullish of the developers when it comes to downtown. He has eight other building sites lined up over the next decade on top of the seven he completed in the last 15 years. He’s bought one office building and may build and buy more.
“San Diego is getting ready to pop,” he said, noting the many downtown projects planned and such economic standouts as growth in the shipbuilding industry. “I’m sold on San Diego and I can tell San Diego is really starting to happen.”
Downtown: 2016 and beyond
- Civic San Diego’s latest project update list shows more than $6.4 billion in development that breaks down as follows (2001-15 totals in parentheses)
- Apartments: 8,106 (6,075)
- Condos: 1,164 (8,270)
- Office space: 658,695 square feet
- (1 million square feet)
- Retail space: 2.6 million square feet (900,000 square feet)
- Hotel rooms: 3,866 (3,683)
Apartments have been the standout development since the Great Recession ended in 2009. CivicSD says 1,248 units were completed this year, bringing the total since 2001 to 6,075. Another 8,106 are in the works.
Among new apartment projects is The Rey (formerly known as Blue Sky), a two-phase, 939-unit, 24-story project at Eighth Avenue and B Street, estimated at $250 million. The 480-unit first phase is due to open early in 2017. The name derives from Mission San Luis Rey in Oceanside, said Will Winkenhofer, vice president of the Santa Ana-based development company Wood Partners.
“It’s an opportunity to pay respect to a name that resonates, we think, with certain folks in San Diego,” he said.
Located just east of Symphony Towers, The Rey will offer a rooftop pool, dining area and kitchen facility; a ground-floor, hotel-style club space; and a two-floor fitness center above that. Eighty percent of the units will be studios and one-bedrooms.
“We think San Diego is just a popular area to live in,” Winkenhofer said. “It has a great job market, a rich culture and beautiful lifestyle and great weather.”
Ironically, most downtown residents commute to work elsewhere, but Winkenhofer said millennials crave an urban lifestyle and like returning to the downtown vibe at night.
“We think the market in downtown is underserved and probably will be for quite some time,” he said.
Besides The Rey, Wood Partners plans a 110-unit project at 1919 Pacific Highway timed to open in the first quarter of 2018.
While downtown historically was San Diego’s central business district, office development has lagged behind apartments. Its 15.4 percent vacancy rate, compared with 11.6 percent countywide, may be one reason for little new construction.
But downtown broker Jason Hughes thinks tech companies and others would pay more than $4 per square foot per month in new, well located and highly amenitized office buildings if they were available. The current average monthly asking rent downtown is $2.68 per square foot, according to CoStar Group’s third-quarter report.
“We are on the cusp of a really great opportunity for developers,” Hughes said. “The problem is it takes three years in planning, permitting and construction.”
So, developers who can deliver new space by 2017 will do “extremely well” in preleasing the promised space.
“Tenant demand is enormous — the product we have is not very good — and it’s still in growth mode,” Hughes said.
CivicSD President Reese Jarrett said the market dictates when and what office building will take place, but he spots “glimmers of hope” among the new projects that have been approved this year.
However, some property owners have objected to downtown’s employment overlay zone that requires certain blocks be built with at least 50 percent nonresidential usage. Jarrett said the policy will be reviewed in coming months to see if the percentage requirement should be adjusted.
On the retail side, the big story in 2016 may be Westfield’s announcement for what it plans to do with Horton Plaza shopping center. The adjacent Horton Plaza park expansion is projected to open in March and Westfield, which will manage the park, has been considering a variety of changes to the 30-year-old mall, from minor adjustments to major demolition and replacements.
Meanwhile, said CBRE downtown retail broker Carrie Bobb, retailers around the country are eying San Diego for expansion opportunities.
“There’s a lot of retailers primarily urban focused,” Bobb said, such as Shake Shack and Kit and Ace washable cashmere. “The millennials are such a driving customer base that they all want to be in these urban environments.”
Downtown zoning typically requires many residential towers to include retail space on the ground floor, but some storefronts remain vacant years after completion. Bobb said farsighted landlords in East Village have offered generous incentives like free rent and tenant-improvement allowances to attract shops and restaurants, particularly those aimed at residents in each building.
“Then they become a desirable place to live, so I think that helps leasing on the apartments,” she said.