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Why SD Shouldn’t Worry About Qualcomm

SAN DIEGO—Despite a large number of layoffs and some space returning to the San Diego market from Qualcomm, the office sector is robust and looks to be strong at least through 2016, Hughes Marino’s EVP David Marino tells GlobeSt.com. The corporate user vacated 254,000 square feet in its most recent cutbacks, but Marino says all of this space has been absorbed and then some, making the ‘Qualcomm Effect’ barely a speed bump for the San Diego County region.” We spoke exclusively with Marino about Qualcomm, the concern surrounding its layoffs and what the future looks like for San Diego office.

GlobeSt.com: Why was the threat of Qualcomm layoffs so concerning initially for the San Diego office market?

Marino: San Diego is very different from the Bay Area, where you have many companies like Qualcomm: Google, Cisco, Facebook, Yahoo and on and on. There are companies there as big as or bigger than Qualcomm by the dozens. In San Diego, Qualcomm is the 500-lb. gorilla occupying a lot of space in Sorrento Mesa. If Qualcomm vacates, no one can backfill that amount of space quickly, but Qualcomm is very fragmented into different buildings and campuses. Sorrento Mesa has historically been one of the softest trailing submarkets as compared to Del Mar Heights, UTC and the surrounding areas. It’s always been behind, whether it’s a tenant- or landlord-favorable market. A supply glut caused by a major downsizing in staffing by Qualcomm could really negatively affect the entire regional office market, and it could take a long time to reabsorb that supply in that submarket. Everybody would have to immediately start competing on price in a market that’s already competing on price to begin with.

GlobeSt.com: What has shifted in this market to make a layoff like this less of a concern?

Marino: The broad economy is doing so well. If you have bad news in a good economy, it doesn’t really change anything. Overall, the county still absorbed on a net basis 900,000 square feet of space. Despite the fact that a quarter of a million square feet isn’t a meaningful amount of square footage, it’s important to the office market in Sorrento Mesa. But some of it was in class A and some in class B in Sorrento Mesa, and some of it was in class B in Torrey Hills—so there were three areas. It just wasn’t enough square footage dumped to be a meaningful amount of space for the entire market.

GlobeSt.com: What can San Diego do to protect itself from future economic downturns in the market?

Marino: We can’t do anything. We can’t plan or manage what’s going to happen in the market—either it will happen or it won’t happen. The composition of companies in San Diego are what they are, but the good news is that we are less dependent on Qualcomm than we have been in years. The life-science industry is robust, and you can’t will that to happen. Billions of dollars have been raised in the last three to four years in life science that has fueled that growth and taken down existing buildings in UTC and Torrey Pines. Also, there’s a more diversified tech industry in town than there was five to 10 years ago, and the nature of those companies is healthier. It’s not like 15 years ago, when the dot-com bubble burst—the companies here today have real products and services and customers paying for those products and services; they’re not speculative companies. San Diego’s tech and life-sciences sectors are stronger than they’ve ever been in 25 years. We’re more resilient from a downturn than we were five to 15 years ago.

GlobeSt.com: What else should our readers know about this topic?

Marino: There’s very little new construction in San Diego County right now. We have effectively 0% under construction right now. The supply is effectively fixed in 2016 and a good part of 2017, and we think the economy will continue to improve well into 2016. As more space comes off the market next year, it will continue to be a robust landlord’s market. The funny thing about this topic is that tenants sometimes get upset that it’s a landlord’s market and that rents are going up, but they forget that eventually commercial landlords win, too. You can’t have low interest rates and a hot market for capital creation without the landlords winning, too. Tenants just have to migrate through that. They will either have to trade down, consider other cheaper trade markets or accept pricing being higher. But revenue is better today than it was five years ago, and it couldn’t happen in a vacuum in isolation without landlords benefitting, too. Even though our firm only represents tenants, this is a byproduct of a good economy, and we’re thankful that we’re living in a good economy.

This article originally appeared on GlobeSt.com.

David Marino is senior executive vice president of Hughes Marino, a global corporate real estate advisory firm that specializes in representing tenants and buyers. Contact David at 1-844-662-6635 or david@hughesmarino.com to learn more.

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