WHAT GOES UP, MUST COME DOWN?
The Orange County based Office Landlord THE IRVINE COMPANY recently sold their Symphony Towers office building in downtown San Diego for just $84/ft. To put this in perspective. Irvine acquired the site in 2003 for $246/ft. In the very same 21 year time frame that San Diego residential real estate tripled this asset sold for 1/3 of its 2003 value. What happened? That $84/ft today was just $31/ft in 2003 dollar values.
FROM WHERE I SAT
My commercial real estate career began in 2003 at…. Symphony Towers. I was working for BRE Commercial Real Estate. Downtown was changing so rapidly that I was hired to walk every block and develop a map of….developments. Back at the office on the 32nd floor I watched Petco Park being built each day. It was the major catalyst for the rapid transformation of the area.
THE STREET SCENE CHANGES
Petco opened in 2004. I moved into the ICON residential high rise across the street from Petco in 2008. Street Scene music festival was in East Village next to the ICON that year. By the time I left the ICON a decade later the “street scene” was City workers decontaminating the sidewalk for a hepatitis outbreak caused by transient’s human waste. Downtown had weekend nightlife, but few wanted to navigate the gauntlet of of aggressive pan handling and used needles each day walking to work from their car. Developers with an “if we build it they will come” outlook continued planning new office projects. Those projects only recently completed in 2024, adding millions of square feet to the weak market. And….the pandemic. The urban areas were perceived as crowded transmitters of potential pathogens. “Work Remote” was here but is it here to stay?
THE NUMBERS
Downtown San Diego currently has 2 million square feet of office space under construction which will add an additional whopping 13% of inventory to the market when completed. Just this past quarter another 185k SF of existing space was added to inventory. Reported availability is 36% although it is likely higher due to shadow spaces not being marketed. It’s bleak.
THE PERFECT STORM OR JUST A RAINY DAY
Did the increased homeless presence, working remotely, and burgeoning supply of new office projects justify the low $84/ft sales price? In my opinion the Downtown office market is bad, maybe not to the extent of such a drastic price drop. The transient issue is getting a bit better and people are slowly returning to the office. Irvine calculated that $84/ft would be better invested elseware. They placed two additional Downtown high rises for sale market this quarter. My back of the napkin calculation yields a whopping 18+% return on $84/ft for the new Buyer. I think Irvine viewed the pending foreclosure of the high rise a block over, and other Landlord’s downtown assets in delinquency as a sign of things to come. I agree it may get worse, we’ll see how that $84/ft investment turns out.
What are your thoughts on this sales price?
TAKE ADVANTAGE
We recently placed a tenant in a beautiful 7k square foot high floor bay view office across from Symphony Towers for less per foot han warehouse space. Take advantage of this weak market. Give us a call or email. We never seek a fee from our clients for our services.
