By Star Hughes-Gorup

The downtown San Diego office market has been plagued with a considerable amount of vacancy over the past three years, in part due to new office inventory, limited parking options and costs, homelessness and safety concerns, as well as the upkeep and cleanliness of streets. This is further exacerbated by the pandemic and safety-spurred hybrid work-from-home trend­–and the associated rightsizing by many companies, particularly in the technology and life sciences industries. The ongoing increased availability has forced landlords to reconsider their options, and rather than lowering their rental prices to correspond with decreased demand, a number of landlords have jumped on the bandwagon of reimagining the space for residential or hospitality redevelopment.

In the past ten years, there was one significant residential conversion in downtown proper at 625 Broadway—which took nearly six years to complete after announcing plans to convert the building from a Class C office space of apartments in 2014, to opening for leasing in late 2020.

The great downtown conversion is changing the office space view with the following highlighted projects.

Speculated Hotel Conversions

Many have wondered what the future holds for Tower 180—formerly known as the Executive Complex (1010 Second Avenue). After a multi-year office renovation and tens of millions of dollars invested into the building, rumor has it that the project is now under contract to J Street Hospitality, a real estate investment and development firm focused on hotels. It’s a fantastic location for a hotel with spectacular views from the upper floors, but it’s surprising to see the building taken off the market for office space after such a significant re-investment.

Similarly, tenants at the Granger Building, located at 964 Fifth Avenue, were recently given notice of their landlord’s plan to redevelop the property, most likely as a hotel, given their success at The Guild Hotel in the former YMCA building on Broadway.

Other Speculated Residential Conversions

There are a handful of buildings poised for residential conversion. The Medico Dental Building, located at 233 A Street, previously known as The Centre City Building—is a historic 14-story high-rise office building that was one of San Diego’s first skyscrapers. Upon its opening in 1927, it was the tallest building in San Diego! The building is currently exploring a residential conversion from Class C office space.

A few blocks away, 530 B Street, is an iconic, 24-story office building situated at the heart of the B Street corridor. While it’s rumored to be under contract to an LA-based developer, Swift (the current landlord) has considered selling it as a residential conversion.

We’ve also seen a handful of landlords insert termination clauses into new leases to keep their options open down the road for potential conversions. Two buildings that have recently included these clauses are very much office projects—and we would never have expected them to push residential conversion termination clauses!

Life Science Conversions

The jury is also still out on life science development and re-development downtown with Genesis – San Diego. Located at 1155 Island Avenue (the former Thomas Jefferson School of Law building), over +/-200,000 RSF and eight-stories of Class A LEED Gold life sciences space, this project will provide an environment for fundamental innovation and creation designed to date with strategically engineered laboratories and highly designed office space, and is ready for leasing as they recently signed its first lease since being completed three years ago for a 27,000 square foot user.

The Campus at Horton, formerly the Westfield Horton Plaza–the largest adaptive reuse project in the United States–is a Los Angeles-based Stockdale Capital Partner’s $550 million project to convert the yesteryear mall into a life science and technology hub. The campus will feature 750,000 square feet of office and life science space, in addition to 300,000 square feet of retail and experiential space. In total, the Campus at Horton will cover 10 acres, includes one million square feet of space and will stretch seven city blocks in the heart of downtown. The project is scheduled to be completed in mid-to-late 2023, yet no space has been pre-leased. They do have some phenomenal retail teed up though!

Another major project taking shape along San Diego’s waterfront at the Embarcadero is IQHQ’s Research and Development District, a $1.6 billion life science project with 1.7 million square feet. It will include a series of mid-rise structures, a 17-story tower, ground-floor shops, restaurants, rooftop decks and a public paseo that travels the length of the property. Rents are expected to start in the $7/RSF range!

There is so much taking shape in San Diego—all quite exciting to say the least! We just need to maintain a steady pace of progress and consider that downtown has approximately 6.5 million square feet of space available for lease, or more than 38% of total inventory. Time will tell which conversions truly come to fruition with rising interest rates and a recession looming.

Photos provided by CoStar.com.