The long-term outlook for downtown San Diego's commercial market -- indeed, for downtown San Diego overall -- is "optimistic ... optimistic without being guardedly optimistic," according to architect Chris Veum, 2003 chairman of the Downtown San Diego Partnership.

"That's not to say there won't be hiccups along the way," Veum said. "But taking the global view, downtown has the potential and the resources to become an even more vibrant urban center with equal emphasis on commercial, residential, hospitality, institutional and quality-of-life developments that are in synergy."

Whether they subscribe to the opinion that the national recession ended in late 2001 or still is the pervasive economic condition, leaders of downtown's business community are finding more reasons to smile today than they did a year ago.

Downtown office guru Allan W. Arendsee, of BRE Commercial, said that leasing activity has definitely picked up. Unlike the Central Business Districts of comparable urban centers, downtown's Class A office vacancy rate is barely into double digits, he said. Nearly every major Class A high-rise has or will have changed hands by early 2004, and the amounts being paid for these commercial assets are far from "fire sale" rates. Activity as well as rental rates for downtown office space have ticked up in 2003.

"Nobody is really leaving downtown, although a number of office users are 'repositioning' from Class A buildings down to Class B buildings," he said, describing a normal part of the recovery process.

Were it not for tight money markets and the recession, downtown should have had at least one new Class A office high-rise well under construction in 2003. Lankford & Associates Inc. is expected to have the first, as well as second, new office projects out of the gates in the new century:

* Broadway 655 -- a 23-story, 391,000-gross-square-foot office high-rise at the southeast corner of Broadway and Kettner Boulevard -- will break ground before year-end, becoming the first multitenant, private sector office tower to be built in the center city in nearly 15 years.

Broadway 655 is expected to break ground before year's end, becoming the first multitenant, private sector office tower to be built in the center city in 15 years.

* By mid-2004, Lankford & Associates also hopes to have the signature "Smart Corner" mixed-use development under way on the block bounded by Broadway and C Street, between 11th Avenue and Park Boulevard. The just-approved project's major elements will include a five-story, 93,000-square-foot office building for the San Diego Housing Commission; a 19-story, 299-unit residential tower incorporating new concepts of affordable housing for purchase; subterranean parking; retail space in the ground floor of the office structure; and new stops for the San Diego Trolley and San Diego Transit Buses.

Smart Corner, a recently-approved, mixed-use development, will include an office building, residential tower, subterranean parking, retail space and stops for the San Diego Trolley and San Diego Transit Buses.

Broadway 655 was delayed by the recession's effect on the financial markets. The Smart Corner, being a first-of-its-kind public/private partnership redevelopment project, has been subject to long entitlement and financing processes. But what of the other office developments once slated for downtown?

Catellus Development Corp., once planning the development of a pair of Class A office buildings flanking Broadway, has converted itself into a REIT and continues to sell property once envisioned for office and hotel towers to downtown's most prolific developer of high-rise condo projects, BOSA Development. The mid-rise and high-rise office projects once planned for construction in the Ballpark District by JMI Realty have either given way to accommodations for parking or are giving way to the redesign of the three blocks abutting the ballpark's left, center and right fields.

Veum, whose firm Austin Veum Robbins Parshalle designed Smart Block, noted that the market research being used by the partnership, the city's Community and Economic Development Department, Centre City Development Corp. and the San Diego Regional Economic Development Corp. to persuade out-of-town business leaders to relocate or expand downtown consistently shows these leaders' great appreciation for San Diego and its quality-of-life amenities. Respondents to market researchers, however, make no bones about their concerns about traffic, circulation and parking, in addition to the high cost of living anywhere in San Diego.

Downtown's housing boom, now entering its fourth year, is a mixed metaphor to the commercial real estate market -- a double-edged sword that is promoting retail development; co-existing, not always harmoniously, with the all-important convention and visitor sector; and providing both an amenity for and threat of sorts to future office development.

Veum, Arendsee and other experts on downtown's business sector are quick to acknowledge the positive influence of a vibrant residential sector on retaining as well as attracting new businesses. Some, including Veum, however, are concerned that too much of what is left of commercial zoned property could be gobbled up by residential developers, thereby precluding development of sufficient office space in the future, as well as an insufficiency of housing that is affordable and attainable by the majority of downtown's work force.

Meanwhile, downtown's retail is looking more vibrant than it has been in years, said BRE Commercial's Tony Villasenor.

Although some established retailers still are struggling with business badly hurt by the events of Sept. 11, 2001 and the recession, more than 300,000 square feet of new retail space is under construction or approved for development in the grade-levels of predominately residential mixed-use projects.

The single largest such project is Champion Development Group's Gaslamp CitySquare under construction on the block bounded by Fourth and Fifth avenues, Island Avenue and J Street in the Gaslamp Quarter. The first development phase of the 280,000-square-foot, $100 million project will open next year with 40,000 square feet of retail space showcasing such upscale trendsetters as Southern California's first Oceanaire Seafood Room and the county's first Quiksilver Boardriders Club, the hip concept retail venues of the Huntington Beach-based maker of surf and active/sports apparel.

A second development phase to be completed in 2005 will have 25,000 square feet of retail users.

Working through the entitlement process is EV LLC's proposal to develop a 43,000-square-foot supermarket -- downtown's second -- along with 225 apartments at 14th and Market streets in East Village. Levin Menzies & Associates' approved ICON mixed-use project on the East Village block bounded by J and K streets, 10th and 11th avenues will incorporate 30,000 square feet of retail space in addition to 285 stylish condos.

Villasenor, who has worked with Champion Development Group since it obtained its block in the Gaslamp in 1998, sees a surge of interest in downtown San Diego from major regional and national retailers corresponding with the nearing of completion of Petco Park and the maturation of residential neighborhoods. This interest has not gone unnoticed by investors.

"With the Ballpark District and all the residential, downtown San Diego is becoming Southern California's mini version of Vancouver, which is one of the hottest urban centers in North America," he said. "We've been told by a lot of spec investors that they consider downtown San Diego to be one of the best investments that can be made today."

Downtown's commercial real estate scene would not be adequately surveyed without mention of the hospitality/visitor sector. The Manchester Grand Hyatt Regency Hotel on the South Embarcadero will become the world's second largest Hyatt Regency property when the second tower opens this autumn. The Omni San Diego Hotel adjacent to Petco Park is moving smartly toward its spring 2004 opening with 511 guest rooms, mixed-use retail and function space and 36 high-end condominiums in the top 11 of its 32 stories.

The Clarion Bayview Hotel at Sixth Avenue and K Street immediately north of the ballpark will announce a new flag and be renovated into a four-plus star hotel by late next year. A joint venture of JMI Realty and San Francisco's Kimpton Hotel & Restaurant Group is scheduled to resume construction of a boutique hotel later this year on J Street between Sixth and Seventh avenues in East Village. Continuing to be advanced are plans for hotels in the Gaslamp Quarter, the Marina District and the historic Core District.

The long-awaited development of a convention center hotel property at the bayside Campbell's Shipyard site presently is mired in litigation and environmental remediation. Potentially, the $87.5 million Conrad Spinnaker Hotel -- approved for construction on a 4-acre waterfront site south of the San Diego Convention Center and adjacent to South Embarcadero Marina Park could be underway sooner, although Hilton Hotels Corp. (NYSE: HLT) has committed itself to finding financing for both hotel properties and will determine the timing.

As for parking, both JMI Realty and the city have 1,000-plus structures under way in the Ballpark District; Gaslamp CitySquare will provide some 360 public parking places in the heart of the Gaslamp Quarter; and the 600-space Columbia Parking Garage on C Street between Columbia and India streets is scheduled for completion next year.

Maydeck is senior vice president of Berkman Communications.