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SD ranked high for high-tech investment

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A new CBRE report places San Diego as a top market for high-technology growth — a ranking that bodes well for the leasing of office space.

"From an investor's perspective, San Diego, Portland and Orange County offer the greatest potential for [high-tech] growth," according to CBRE (NYSE: CBG), which tracks 20 office markets across the country.

"Robust high-tech employment has played a major role in the recovery of the U.S. office market and has helped fuel double-digit rent growth in eight U.S. markets over past two years, including San Diego," the report continued.

Excluding leases of less than 20,000 square feet, about 720,000 gross square feet of high-tech leasing was generated in the county during the first half of the year, said Mark Fitzgerald, a CBRE global research manager.

While the net leasing figure was unavailable, Fitzgerald said the 720,000 square feet equates to a quarter of the overall leasing activity in the San Diego market for 2014's first half.

"There are approximately 750,000 square feet of space requirements in San Diego County from tech tenants," Fitzgerald added. "These are requirements on top of the solid activity already demonstrated."

CBRE stated that San Diego County had about 6.8 percent of its new hires coming from the high-tech sector from 2011 to 2013.

The brokerage firm tallied a 3.9 percent growth in high-tech employment from 2011 to 2013, which equated to about 1,000 new jobs and more space demand.

This in turn contributed to a 15 percent increase in countywide office rent growth from 2012's second quarter to the second quarter of 2014. The rate ranged from $1.70 for Class C to $2.82 for Class A space, according to CBRE, as of June 30.

CBRE reported the Sorrento Mesa market, where Qualcomm, (Nasdaq: QCOM) is located, has seen particularly high rent growth.

Of the 4.3 million square feet Qualcomm occupies, about three-quarters is in existing buildings or buildings under construction and 1 million square feet is in planning stages. That leaves more than 1 million square feet being leased by the telecommunications firm in Sorrento Mesa.

“Sorrento Mesa remains the technology epicenter of San Diego, with several top name software technology companies in the area," said Ryan Egli, a CBRE first vice president.

"This industry has led the way in terms of job growth in the region, resulting in positive net absorption and increased rental rates. These favorable real estate fundamentals have also caught the attention of several investors, who have been looking to acquire in this highly desirable submarket."

Sorrento Mesa lease rates, like those of Del Mar Heights, have climbed significantly in the past two years, despite the submarket returning a net of 11,393 square feet in the second quarter and 90,884 square feet through the first half of the year, CBRE wrote.

Andrew Ewald, a vice president for CBRE’s San Diego Region, said the recent hiccups notwithstanding, "it is not a surprise that Sorrento Mesa has shown a sharp increase in rent over the last 24 months."

CBRE pegged the average rent range in Sorrento Mesa from $1.63 for Class C space to $3.20 for Class A space and climbing.

Sorrento Mesa's Class A rate, which had been closer to the mid-$2 range during the recession, has returned to close to its peak.

Ewald said large technology companies continue to expand and tenants are seeking Class A and creative space options to recruit and retain their employee bases in Sorrento Mesa. This has created a heavy demand in the marketplace and pushed the rents.

The second quarter's largest high-tech leases in terms of square footage, according to CBRE, was Sony Computer Entertainment's renewal of a 184,211-square-foot lease on Scranton Road in the San Diego Tech Center in Sorrento Mesa.

In other areas, the driver-safety technology firm Lytx signed a lease for 75,537 square feet in the University Towne Centre market, Oracle renewed its lease for 63,412 square feet in UTC, and HP Enterprises Services signed a 62,701-square-foot lease in the Sports Arena area during the second quarter.

Not all the transactions were leases. A DRA Advisors entity bought a four-building office portfolio in Sorrento Mesa for $41.15 million in June.

Major tenants in the 100 percent leased DRA-owned buildings on Pacific Heights Boulevard, Huennekens Street and Pacific Center Boulevard include Solera Wireless, Tearlab Corp. and Raytheon.

Other high-ranking high-tech office markets are in San Francisco, Silicon Valley and the San Francisco Peninsula, as well as Manhattan.

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