With downtown high-rise office buildings maintaining a vacancy rate of less than 9 percent, one downtown high-rise is under way and another building may start development by late fall.
"I think they have a reasonable amount of activity, but they are not under a lot of pressure since they have their loans," said Kraig Kristofferson, a CB Richard Ellis senior vice president.
The second office building expected to get under way this year is adjacent to Petco Park. Cisterra Partners is hoping to get its 300,000-square-foot DiamondView Tower started by late fall.
In April, JMI Realty announced that it had entered into a formal agreement with Cisterra for the development of the 14-story office building. JMI, master developer of the East Village area around the new ballpark, is owned by John Moores, also owner of the San Diego Padres.
Jason Wood, Cisterra director of development, said the market is strong enough today, and San Diego real estate is such a good investment, that DiamondView is expected to only need a 30 percent pre-leasing requirement before construction is begun.
When asked why Cisterra will only need a 30 percent pre-leasing requirement when Lankford required 50 percent, Wood said it is because the market is particularly strong. He said San Diego is one of the hottest office markets right now, along with Washington, D.C. "There's more money chasing fewer deals," he said.
Wood declined to reveal the names of DiamondView's tenants, other than a letter of intent that has been signed for Cox Communications (NYSE: COX). He does say there are leases out for signatures that will fulfill the 30 percent leasing requirement. The tenants are in a wide range of fields, from attorneys, to the financial services industry.
The names of DiamondView's conventional lenders were not disclosed, but Wood said they have been identified as well.
Like Lankford's building, DiamondView Tower will need to command rents in excess of $3 per square foot. It will have an array of amenities, including shuttle service into the downtown core, and to the airport.
The building will also have floor plates as large as 33,000 square feet, versus about 19,000 square feet for a typical building.
While Lankford and Cisterra look ahead, Kristofferson said, "the real good story is that Gray Cary Ware & Freidenrich is coming back downtown from UTC."
Kristofferson said that Gray Cary, which left downtown about five years ago, is returning to about 80,000 square feet in Wells Fargo Plaza that had been subleased to Lerach, Coughlin, Stoia & Robbins LLP, formerly known as Milberg, Weiss, Bershad, Hynes & Lerach LLP. That firm is slated to go into Broadway 655 when it is completed late in 2005.
"That's 80,000 square feet that would have been vacant had they (Gray Cary) not moved back down here," Kristofferson said.
Kristofferson said Gray Cary will maintain some space in North University City.
Wood agreed that while there was a flight of companies to the suburbs a few years ago, they are returning, or at least considering it. "We're already seeing some companies looking back toward downtown," he said.
Kristofferson said another piece of good news for downtown is that Sempra Energy (NYSE: SRE) renewed its lease for space in a downtown high-rise. For a time, it was thought Sempra, which has a substantial presence in Kearny Mesa, might move its headquarters to the suburbs, but has decided to stay put. That building, incidentally, is owned by Sandor Shapery.
While there have been some fluctuations due to tenants moving within the market, the vacancy rate has remained remarkably stable from year to year. A CB Richard Ellis report said the average vacancy currently stands at 8.74 percent. Churning put some space back in April, but even with that, the downtown high-rise vacancy is nearly unchanged from May 2003's figure of 8.64 percent.
The 241,988-square-foot Bank of America building has the highest percentage vacancy at 29.53 percent, but Kristofferson was quick to point out that this could be somewhat misleading because the bank only has about five years on its lease. Once Bank of America (NYSE: BAC) decides what to do with this space, it could be freed up, and hopefully leased up quickly.
There are buildings with more vacant space. The 701 B St. Tower, fondly referred to as the "Darth Vader Building," has 70,826 square feet of its 543,020 square feet available, for a 13 percent vacancy rate.
Emerald Plaza has put some space back on the market, and has 63,800 square feet of its 356,901 square feet available for a 17.9 percent vacancy rate.
At the other end of the spectrum, there are some buildings, particularly those occupied by the city of San Diego, that have no vacancy at all. Both the 266,954-square-foot Civic Center Plaza at Third and B streets and the Executive Complex at 1010 Second Ave. fit into that category.
Even buildings that have double-digit vacancies lack the contiguous floor spaces that many companies want. For those, tenants will have to wait at least until the end of next year when Lankford's Broadway 655 comes on line.