We recently got news that Hines has approved La Jolla Commons III for a July 2015 completion date. One of two new towers that the market is planning to bring out of the ground in UTC, La Jolla Commons III will be competing with the Irvine Company’s La Jolla Centre III, also scheduled to open in early 2015.
With class A space at a premium in this desirable sub-market, the time looks right for a new tower to meet demand. Currently there are only five full-floor, Class A options for tenants in UTC, and there are no multiple-floor, Class A spaces available in any of the UTC high rises. Good quality options are thin even for tenants between 10,000-20,000 square feet.
This lack of supply means that rents continue to rise, with prices today ranging from $2.80/sf to $3.50/sf, and very little free rent being provided by landlords. These inflated face rates combined with the virtual evaporation of free rent have resulted in a 50% increase in UTC Class A prices over the market low in 2009. Pricing in the two new buildings is going to be in the low $4’s, and the market just might be there to charge those prices two years from now.
Either of these new office buildings would be well-timed in the absence of the other, but I question whether there will be enough demand to support TWO new towers in UTC. Certainly there is the need for one, but with two of them coming on line, it feels like overbuilding the marketplace again.
Regardless of whether it makes sense, we are happy to see new inventory in UTC because it means more choices for our clients who are looking for high-end, Class A office space. The potential oversupply may serve to keep rental rates in check and prevent them from going much over $4.00 in the longer term, which saves our clients money — always a good thing.
It’ll be a race to the finish to see which tower is able to open its doors first and start absorbing the latent demand in UTC — The Irvine Company thinks they are in the lead. We’ll be watching to see who comes out on top
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.