The redevelopment wave is spilling into East County, with a record number of condominium conversions sparking renewed interest by retailers and businesses that are attracted to the area's changing demographics. The growing popularity of nearby executive communities -- including Blossom Valley, Jamul and Alpine -- is also fueling demand for commercial development by business owners who want to work closer to home.

"Revitalization efforts in communities like El Cajon, La Mesa and Santee are gaining momentum, generated by growing demand for entry-level housing as well as by the desire of executives who live in nearby residential areas to work closer to home," said Kyle Clark, vice president with Burnham Real Estate Services. "El Cajon, in particular, is seeing a surge in condo conversions that is attracting young professionals who are eager to invest in a first home. In turn, retailers who previously would not have considered locating in El Cajon are moving quickly to position themselves to serve the area's changing demographics. Starbucks, for example, is entering the market with their second El Cajon location, due to open early next year."

There are seven conversions of apartments to condominiums in El Cajon under way. This is adding 415 for-sale units to a market that historically has been dominated by subsidized rental housing.

"The growing number of first-time homeowners is driving demand for office space and retail services," Clark said "Current office vacancy in East County stands at just 2.1 percent, and there is very little land available for commercial development. As a result, most of the new projects are mixed-use, combining residential atop ground-floor retail and office space."

When driving through El Cajon's downtown district today, nearly every block shows signs of new construction or rehab. New streetscapes and exterior building facades are helping to create a new image for the area.

"Additionally, residential construction along with 47,000 square feet of new infill commercial space is transforming this previously underutilized area into what will become a thriving business district," Clark said.

Priest Development is nearing completion on 20 town homes that comprise the residential portion of a mixed-use development at Magnolia and Main that also will offer retail, restaurants and office space. The company is also about to begin construction on 103 single-family homes behind El Cajon Town Center -- the city's largest residential construction project in years. The center, formerly home to a Regal Cinema and Discovery Zone (PNK: DVZN), has been re-leased to Motoworld and a church organization.

Also driving East County revitalization is the desire of many executives who live in nearby million-dollar home communities to work closer to home. Blossom Valley, Alpine, Jamul and Dehesa Valley have seen strong population growth in recent years as they present opportunity for high-end custom development on spacious lots. More established East County communities, like Mt. Helix and Horizon Hills, have also historically been popular executive housing areas.

"In the past, residents of these neighborhoods were willing to commute downtown or to other suburban markets -- particularly since East County was not easily accessible and was not a recognized business center with the type of image their companies needed," Clark said. "Now, as the region's revitalization takes hold, this perception is changing and an increasing number of executives are actively inquiring about office and industrial availability in the East County area."

Downtown El Cajon is already seeing notable business expansion. Since January 2001, 73 new businesses have opened, creating 327 new jobs in the process. Lease rates in the district have increased from 55 cents to $1.15 per square foot, with $41 million invested for private construction and rehabilitation.

As a result, Burnham research shows that average office rental rates in El Cajon have risen to an average of $1.75 per square foot for new projects, and $1.50 per square foot for older space. Retail space is following suit, leasing for $2 to $2.50 per square foot for newer space and $1 to $1.15 per square foot for older projects.

While new business is on the rise in El Cajon, Clark predicts that La Mesa will be the more immediate and notable beneficiary of East County residents wanting to work close to home.

"La Mesa's prime location at the merge of the new SR-125, Highway 94 and Interstate 8 freeways places it within easy access to all points of San Diego County," he said. "With office vacancy of just 1.9 percent, there is virtually no existing space available. Infill redevelopment will be needed to satisfy the growing demand for space. As this occurs, we believe that La Mesa will emerge as the primary central business district for East County.

"La Mesa really set the model for redevelopment in East County," said Clark. "The success of La Mesa Village shows the benefits to be enjoyed when a community's vision becomes reality."

Lemon Grove is initiating some redevelopment along the Broadway corridor and, like El Cajon, is looking to add infill office development to provide work opportunities for residents closer to home.

In Santee, the Fanita Ranch residential project has yet to become reality. However, the recent opening of Santee Trolley Square added 450,000 square feet of retail space with tenants including Target (NYSE: TGT), Circuit City (NYSE: CC), Petsmart (Nasdaq: PETM), TJ Maxx, Bed, Bath & Beyond (Nasdaq: BBBY), Old Navy and Barnes & Nobel (NYSE: BKS). A community amphitheater is also part of the project.

Ryan Cos. also completed last April the first building in a 104-acre high-tech business park located at 101 Civic Center Drive. The 77,000-square-foot facility was a build-to-suit for The Hartford Affinity Personal Lines, which also has a $13.5 million option for an additional 20,000 square feet on 8.23 acres.

Grove is president of The Grove Agency.

Related Link

Burnham Real Estate Services: www.burnhamrealestate.co