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Businesses leave downtown for North County

High parking, rent costs cause for ‘exodus,’ says recent survey

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Many businesses are deciding that suburban office markets are better places to be than Downtown San Diego.

In a survey of 250 anonymous business owners by the law firm of Troutman Sanders LLP, a majority said a leading reason tenants migrate to the suburbs is a belief that downtown office space is too expensive.

"It is too pricey to rent downtown," said one executive. "Rent is cheaper in the North County area," said another respondent.

Michael J. Whitton, managing partner of Troutman Sanders' San Diego office, claims this is a false assumption.

"The fact is that while rents have historically been cheaper, demand has risen and even with the downturn in the economy, rents in Carmel Valley are now higher than downtown," Whitton said.

The law firm commissioned the survey as part of its own recently announced move to the Torrey Reserve office park in Carmel Valley this month.

"Affordability wasn't really the determining factor behind our move," Whitton said.

"Instead, as more and more of our clients moved to North County, we realized we needed to be closer to them. From a business perspective, we didn't have any other choice."

The firm has been located in downtown San Diego since 1973, the year that the law firm Miller, Boyko & Bell was founded. That firm merged and became Ross, Dixon & Bell in 1999, then merged again in 2009 with Troutman Sanders.

"This was a difficult decision for us," Whitton said.

"We've been downtown for 40 years, but our clients and competitors were all in the North County."

Troutman Sanders also was drawn to North County for recruiting purposes, said Whitton, now that the area has become home to several large, international law firms.

Other firms may be ready to follow suit north. About 16 percent of business owners and executives surveyed left open the possibility of moving their companies to North County. Aside from rents, parking availability and cost were also leading reasons cited by companies as a reason they might leave, or already had left, downtown San Diego.

That, says Whitton, is a legitimate complaint, particularly for firms with large staffs that may need to grow.

"Parking is a huge issue," said one survey respondent. "Prices are high and there is nowhere to park. Parking is not a problem in North County. More parking in the downtown area would help reverse the trend of businesses leaving."

“Parking can add 50 cents to $1 per-square-foot to the lease," said Jason Hughes, Hughes Marino principal.

Craig Irving, president of The Irving Group, agreed the cost of parking sends many would-be tenants away from downtown. Put simply, at a time when many businesses were shrinking their staff and struggling with bottom lines, parking costs remained high -- or went even higher.

"People want to spread out in North County," said another business executive. "It's easier to get to, there's more space available to develop, and there are fewer parking issues."

Tony Russell, a Jones Lang LaSalle (NYSE: JLL) executive vice president, said for whatever reason, law firms continue to prowl around the North City areas in search of suitable space.

"Latham & Watkins is looking for about 80,000 square feet in UTC and Del Mar Heights," Russell said.

Eli Gilbert, JLL senior research analyst, added that the Knobbe Martens Olson & Bear LLP law firm closed its downtown office last summer to relocate to the Carmel Valley area.

"It's really just the litigators who need to be downtown," adds William Fleck, a Jones Lang LaSalle senior managing director for tenant representation.

"There's never been an influx of suburban law firms moving downtown. It's always gone the other way." Irivng argued there is not only an exodus, it is accelerating.

"Tenants are moving out of downtown at an alarming rate," said Irving.

Irving noted that besides the departure of Knobbe Martens and Troutman Sanders leaving downtown to go into Carmel Valley, the law firm of Kimball Tirey & St. John has moved out of McClintock Plaza on Kettner Boulevard in downtown to go into Hazard Center in Mission Valley. Also, McKenna Long & Aldrich, LLP has moved out of Symphony Towers to the University Towne Centre area.

Law firms are not the only businesses leaving downtown. Going back about a year, American Specialty Health seemed to start the trend when it abandoned 156,000 square feet of space in the Paladion Shopping Center for 190,000 square feet in Sorrento Mesa.

Kraig Kristofferson, a CB Richard Ellis senior vice president, said while some companies have moved out of downtown, it would be a mischaracterization to call it a mass exodus. He also said the Baker & McKenzie law firm is exploring returning to downtown from the Del Mar Heights area, and that tenants are signing leases in downtown again.

"We have proposals out at Diamondview that will bring it to 95 percent leased," Kristofferson said, adding that he is also seeing a bump up in rental rates.

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