Urban Life Science Hub to Emerge in Downtown San Diego

IQHQ has closed on a majority of Manchester’s long-awaited development in San Diego’s Marina District, Pacific Gate. Once marketed as a grand mixed-use office/retail/hotel project with public space component, the project is perhaps the biggest development derailed by recessionary fears & Covid to-date. In steps Alan Gold and his new life science real estate investment group, IQHQ. Gold is no stranger to the Life Science facilities, he co-founded BioMed Realty trust, a life science facility development company he sold to Blackstone Group for a reported $8 billion in 2016. With this acquisition, IQHQ shifts the vision of the project to become San Diego’s first urban life science center. Dubbed RaDD, the San Diego Research and Development District will have unmatched views, open space, and retail amenities aimed at attracting top 50 life science companies. Manchester will retain two of the site’s eight blocks and continue developing one of the two planned hotels and 1.9-acre plaza, although the firm did not share a timeline for construction.

At the moment, construction isn’t scheduled to commence until 2021, with the district’s first phase complete in Q3 2023. Plans include a series of mid-rise structures and one 17-story tower, a museum, 3 acres of public green space and rooftop decks. The Navy’s 372,000 SF office on-site is complete and move-in ready.

The question on everyone’s lips is ‘why’.

Based on San Diego’s standing as the number 3 life science hub in the nation, with demand still driving development and an increasing number of existing pieces of industrial product being converted to satisfy their needs; new supply is needed. Existing life science hubs in Sorrento Valley, Torrey Pines and Carlsbad are achieving high rents and show no signs of stopping even through the recession and pandemic. So then, why downtown which is a minimum of 13 miles from any of these hubs? Downtown San Diego recently attracted UCSD’s expansion campus, paving the way for a more research-oriented business and resident mix. Downtown San Diego offers accessibility to a myriad of public transportation services including the new San Diego Trolley Blue Line which will connect Downtown to San Diego’s Life Science Hub in Torrey Pines near UCSD, the Green Line which connects it to SDSU, and also a half-hour train ride to the Solana Beach area. The Marina district also has a planned redevelopment of Seaport Village which would add even greater retail offerings as well as public space to the area. Add to all that the numerous multi-family developments in the area and the project suddenly makes more sense.

But isn’t downtown mainly an office hub?

Today the answer is ‘yes’. The roughly 1.5 million square feet of new office construction in the submarket may be tough to lease given the pandemic/recession In fact, multi-tenant office leasing is off over 50% year over year in the submarket, and new deliveries have yet to do any substantial pre-leasing. An urban waterfront science park could be a big draw for the Pfizer/Alexion/Roche/Merck of the world, and smaller companies would be sure to follow when large anchors are landed. Amongst the commercial real estate community there are rumors both Parallel Capital Partner’s current redevelopment of Horton Plaza is shifting to a life science use, and the recently sold Thomas Jefferson School of Law building as downtown's office market now appears over-built. All factors included, you can see why a more diverse tenant mix is needed.

 Jamal Brown is the CEO of The Ocean Company, an exclusive tenant representation firm with offices in San Diego, Orange County and Los Angeles focusing on the leasing and acquisition of commercial real estate.

Main: 858.356.2990 | E-mail: jbrown@theoceanco.com | social: @theoceancompany

5 Leasing Tips We Can Learn From Dogs

The two most persistent beings in the universe have to be dogs and children. Why are these little cutthroats so good at getting what they want? Here’s a few take aways we can we apply to the commercial leasing process which should help your company get what it needs.

1. Explore all your options: Dogs will stick their nose in everything just to figure out if it’s edible. At the onset of facility negotiations, you need to enroll as many desirable locations as possible. You also need to ask for everything that would make a facility contract compliment your business plan. Be strategic in the structure of the financial terms and the amount of exposure so your business can thrive.

2. Be Persistent: Ever had a dog beg for snacks/your dinner/belly rubs/a walk and then give up after one rebuke? Me neither. So when you don’t get a positive initial response to your requested lease terms, ask again. You may need to modify the language a little but go for what your business needs until you get it.

3. Play Dead: With a little training, dogs will do this for a reward. Sometimes it’s necessary in lease negotiations to take a step back, act offended, and let a landlord think their negotiation strategy killed a deal. More often than not you’ll reap the reward.

4. Leave Nothing Left: Whether it’s treats or steak bones, dogs rarely leave anything unfinished. Real estate costs are usually the 2nd or 3rd most costly expense your business will incur. You owe it to yourself and your employees to mitigate the fixed costs and your exposure to additional charges in negotiations. Grind multiple locations down simultaneously and don’t leave money on the table. Use each site as leverage against one another. Push hard until there’s nothing left.

5. Trust Your Pack: Dogs are a pretty good judge of character, and in their pack (human or canine) everyone plays their role. You need professional service providers throughout the leasing process. An experienced tenant representation broker to guide you through site selection and negotiation, a project manager to assist with construction pricing, scheduling and vendor coordination, and an attorney to negotiate and review lease language. Not only can you leverage these professionals to create the best outcome, you can spend more time focusing on your core business while they work for you. Lone wolves don’t accomplish much, you need a pack.

 Jamal Brown is the CEO of The Ocean Company, an exclusive tenant representation firm with offices in San Diego, Orange County and Los Angeles focusing on the leasing and acquisition of commercial real estate.

Main: 858.356.2990 | E-mail: jbrown@theoceanco.com | social: @theoceancompany

Not All Buildings Are Created Equal

All commercial buildings are not created equal. One of the most overlooked aspects of a building’s value to the tenant is the efficiency of that particular building when compared to another. This efficiency is in relation to the ratio of the space the tenant actually leases within their four walls (the usable square footage) and the amount of space attributed to all common areas of the building including the lobby, hallways, restrooms, common conference rooms, common kitchen areas, interior break areas, work out buildings, showers/lockers, phone and electrical rooms, and any other common use area that, when added to the usable square footage, makes up the rentable square footage. This ratio is called the building “core factor” (also referred to as “load factor”, “loss factor”, or “add-on factor”). Understanding core factors translates directly to the bottom line. Since building costs are typically near the top of the expense list, the savings can be dramatic in comparison to other expenses. Pay attention to the core factor.

Urbanization's Effect on Commercial Real Estate

The great recession killed the suburbs. Since 2007, metropolitan cities across the country have experienced a migration of residents towards urban living environments. This trend could be the answer to urban decay, with many seeking more fiscally practical and cohesive living arrangements. Referred to as "re-urbanization", the trend is the opportunity San Diego needs to return neglected areas of downtown to their former prestige.  Large adaptive reuse and infill projects have gained traction from Little Italy to East Village, including dynamic public spaces, but it will require buy-in from local employers before the transformation of 'America's Finest City' reaches its potential.

   The new Central library, the renovation of Horton Plaza, and open space meeting areas like Quartyard, SMARTSfarm and Silo at Makers Quarter have created a buzz about downtown. The supply of living spaces downtown is increasing, and the increase in population is expected to drive an increase in demand for workspace. For office space users, this means considering locating you company near your employees or desired talent pool.  If your employees demographic age is 23 – 35, odds are they reside in the area between Mission Valley, the beach communities, and Downtown. This demographic seeks employment in walk-able, livable urban areas which complement their lifestyle. Companies seeking top talent may need to consider their proximity to "live-work-play" environments in order to stay competitive. Planned developments like Makers Quarter and IDEA are courting large employers with build-to-suit options for mixed-use office/retail/residential spaces, which resemble small cities within a city. The challenge in bringing these developments to life is pre-leasing to an anchor tenant large enough to initiate construction. Recently San Diego companies The Active Network and Websense, who occupied approximately 100,000 SF each, relocated out of California, leaving a small pool of local tenants large enough  these projects.

     Downtown's diverse tenant mix now includes technology and professional service providers in numerous co-working spaces and incubators. The area is a logical place to create a hub for hi-tech entrepreneurs. Accelerators like Plug n Play, who expose early stage hi-tech companies to Silicon Valley capital, and Evonexus, the Qualcomm sponsored incubator located in the heart of the Civic-Core district, provide mentorship and strategic funding to start-ups making high-tech innovations. It’s likely that these businesses would stay in the area as they grow, creating a greater demand for office and living spaces. The economic benefit is measurable, according to Steven Cox, CEO of Take-Lessons "there will be 1,500 to 2,000 tech jobs created here in San Diego. The average tech job pays about $103,000. So, when you take a look at how technology and innovation fuels the economy, it’s really interesting to see how that’s growing, specifically in downtown." A study completed by The Downtown Partnership, concluded that every tech job brought downtown create(s) another 1.6 jobs meaning a welcome increase in new restaurants and retail businesses serving the area. All of this could lead to an increase the tax base in the area, resulting in more money for public works and infrastructure. 

Employers do face obstacles in relocating downtown where parking spaces are scarce and costly. On-site parking downtown is generally granted at 1 parking space per one thousand feet of leased space, not attractive for high density space users with a large percentage of employees who commute from the suburbs. Parking rates in mid to high-rise office buildings range from $130 - $200/stall/month, and while surface lots in the area charge slightly less, this added expense prevents many employers from relocating to the area. The planned trolley expansion may ease these concerns, however service along the new line to UTC wouldn’t commence until 2019.

Downtown San Diego has come a long way, and is becoming more attractive to young companies, and businesses locating closer to talent or their employee base. It may take years for San Diego to have a thriving downtown sector, but with support from employers, and local government, will one day reach its potential.