By David Marino
The UTC office market has quickly become the hottest office market in San Diego county, experiencing an unprecedented recovery. With its central location, excellent freeway ingress and egress, expanded mall and restaurant amenities, UTC has become the place to be. With the trolley line due to be in service in 2021, employers are looking at UTC as the only suburban office market other than Mission Valley where mass transit access will exist, making an even more compelling case to locate in UTC now. To entice tenants to come to UTC or expand there, The Irvine Company has pumped tens of millions of dollars into upgrading the fitness facilities, building lobbies, interior and exterior common areas, and rebuilding older interior tenant spaces into fresh, contemporary suites. Other office projects, like The Aventine and the BioMed Realty’s biotech cluster in Eastgate at the northern end of Towne Centre Drive, have also seen major reinvest from building owners where new food amenities now exist that were not there a few years ago.
Since the recession of 2007-2009, UTC has experienced a pivot with the kind of tenants that call UTC home. A tipping point of UTC’s shift to tech was back in 2009 when The Irvine Company donated 14,000 square feet of free space for EvoNexus to launch its tech incubator. Hughes Marino represented EvoNexus pro bono, and EvoNexus has since expanded to 24,000 square feet, spinning out dozens of tech companies over the last decade, most of which call UTC home. Once just for financial services and law firms, the tech industry leases more space in UTC than any other industry. Apple just leased 90,000 square feet in Eastgate Terrace, the new three-story building on the northern end of Towne Centre Drive, and has plans to expand in that neighborhood by as much as 500,000 square feet over the next three years, and are already eyeing an additional 200,000 square foot space commitment on the north end of Towne Centre Drive. ServiceNow has committed to another 38,000 square foot expansion in Eastgate, bringing ServiceNow’s space under lease in UTC to just over 300,000 square feet. Hughes Marino clients such as SmartDrive, Platform Science, TuSimple and Kyriba have all made expanded commitments to UTC in 2019 ranging from 15,000-63,000 square feet, totaling 145,000 square feet between them.
Hughes Marino client Fairway Technologies moved this January from La Jolla Village to UTC for 18,000 square feet to get more centrally located, and Vistage moved from Del Mar Heights to UTC last summer for 60,000 square feet to get better value. The region’s hottest financial service companies like StepStone Group and Silvergate Bank are still finding UTC desirable with Hughes Marino negotiating expansions for both companies of 7,000 and 4,000 square feet respectively this year. All of this business expansion within and relocation to UTC has radically changed vacancy rates for the Class A office portfolio, and put upward pressure on rents, as this three-year historical graph demonstrates.
Bringing the macro story down to the micro, this chart documents the percentage leased for all of the major UTC Class A office buildings of four stories and above. Ten of these buildings are 100% leased, unprecedented in the history of any San Diego County office market. All but three of the remainder are leased above 90%, most in the mid to high 90’s. Underperforming the market is La Jolla Commons, where The Irvine Company has poached many of the tenants, and Nobel Executive Center, with its parking challenges, lack of amenities and mix of medical tenants co-mingled with professional office tenants.
Life Science tenant activity is also on fire in UTC as those tenants want to be in UTC for the same reasons that the tech companies do. Hughes Marino client Samumed committed to a 75,000 square foot expansion to take the former Amylin headquarters building on the corner of Executive Drive and Towne Centre Drive. Takeda Pharmaceuticals has moved from Torrey Pines to their new 150,000 square foot research facility on Towne Centre Drive, which was custom-built by Alexandria Real Estate. Poseida has also made a 50,000 square foot commitment on Towne Centre Drive, moving from the Campus Point area also to the former Amylin campus, which is being remodeled and amenitized by BioMed Realty.
The related biotech story is what is happening in Campus Point, just on the northwestern end of UTC across from Scripps Hospital. Alexandria Real Estate and Phase 3 Real Estate have invested hundreds of millions of dollars converting the former SAIC, Kyocera and Qualcomm facilities into state-of-the-art biotech research facilities. They have built it, and they have come. Companies like Eli Lilly, Celgene, Tocagen and Heron have relocated to and expanded in Campus Point. The Biolabs biotech incubator has expanded in Campus Point, and Alexandria Real Estate has demolished an obsolete two-story concrete tilt up lab building to construct the new five-story Class A, 98,000 square foot “GradLabs” that will accommodate small biotech startup companies from 1,000-5,000 square feet, giving them a path to “graduate” within the building as they need 10,000-20,000 square feet. Even tech companies like Amazon and Leidos call Campus Point home, and Leidos is planning for a major relocation in the neighborhood to upgrade from their older facilities into a new state-of-the-art facility built to suit.
UTC as I found it 30 years ago when I moved to San Diego was a sleepy submarket, with little energy or life. Today, UTC is the most robust and dynamic market in all of San Diego County, with incredible vibrancy and diversity, and the strongest tenant demand in UTC’s history.
David Marino is executive vice president of Hughes Marino, an award-winning commercial real estate company with offices across the nation. One of the top commercial brokers in all of Southern California, David possesses unrivaled, comprehensive market knowledge, and writes regularly about San Diego commercial real estate on his blog, Suburban Scoop. Contact David at 1-844-662-6635 or email@example.com to learn more.