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Who Wants to Buy a High Rise II: Class B (and C) Going Up for Sale

By Jason Hughes

Downtown’s El Nino?

When it rains, it pours – at least that’s what is happening now for downtown office building sales. Not only is 525 B Street (the Procopio building) actively taking purchase offers, so are 1010 Second Avenue (known as the Executive Complex) and 530 B Street (the Union Bank Building). 600 B Street would also like to sell – but needs to fill up first.

Why is this happening? Because there is a frenzy to purchase high-rise office buildings in the Central Business District (CBD) sector. And big money is betting that Class B buildings (which all of those above are – except 1010, which is really a Class C Building) will increase in value as occupancy increases.

This is a movie we’ve all seen before, so unfortunately the end is predictable. We’ll have increased rents until there is very little vacancy, and then we’ll see crazy high rents until there is either over-building or a recession – or both. Then occupancy and rents collapse, and the dance starts all over again.

First mover advantage?

In my last column I talked about Manchester’s Pacific Gateway (1.2 million square feet of new office space plus the 300,000 square foot Navy building) and Cisterra’s Ritz Carlton project (which will include a 170,000 square foot office building directly north of the new Sempra headquarters) – but both of these are scheduled for delivery in mid-2019. So what happens in the interim?

There are several smaller projects getting close to kick-off.

Architect’s rendering of a new creative office building planned at 450 B Street. Image courtesy of Gensler.

First is a super-cool, new mid-rise at 450 B Street. Sumitomo is trying to build a new 80,000 square foot building where the current Bank of America branch site is. It’s a great design – and has some interest from full-building users. The only problem is that it will take two-plus years to build – and most San Diego companies don’t like to plan relocations less than a year out.

Rendering of the Co-Lab office building, which will be located on Block D of Makers Quarter. Image courtesy of Lankford & Associates.

Second is Makers Quarter. Lankford says he’s breaking ground on the initial 50,000 square foot office building in Q1 2016, with a 3rd or 4th Quarter 2017 delivery.

Third is HP Investors’ building at the current Buca di Beppo site on 6th Avenue, where the developer intends to build an 80,000 square foot tech-centric building with terraces and a restaurant/bar on the top floor.

But the first to start will be the first to finish, which will be the one to likely capture the market.

Stay tuned on this one.

Jason Hughes is chairman, CEO, and owner of Hughes Marino, an award-winning commercial real estate company with offices across the nation. A pioneer in the field of tenant representation, Jason has exclusively represented tenants and buyers for more than 25 years. He writes about topics in commercial real estate from a tenant’s perspective on his blog, Downtown Dirt. Contact Jason at 1-844-662-6635 or jason@hughesmarino.com to learn more.

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