Apple Adds More Space in University Town Center
October 1, 2021
Deals Should Help Rein in Market's Double-Digit Vacancy Rate
Apple has expanded its footprint in the University Town Center office market during the third quarter, after announcing it intends to hire more than 5,000 local workers in the coming years. That figure has increased from the tech giant's initial announcement of 1,200 employees in 2018.
In the University Town Center market, Apple signed the largest sublease amid the pandemic when it sublet 73,000 square feet at La Jolla Commons Tower I at 4747 Executive Drive in the third quarter, taking space that had been put up for sublease by Illumina at the end of last year.
Apple also took possession of its first build-to-suit in the University Town Center market earlier this year when Kilroy delivered a 165,000-square-foot building at 9455 Towne Centre Drive. Work is still underway on another build-to-suit for Apple at nearby 9775 Towne Centre Drive, a 204,000-square-foot property that is scheduled to deliver in the new year.
Apple may continue to be active in the market. Although unconfirmed, all signs point to Apple as the new tenant in one of University Town Center’s biggest office leases signed over the past two years. Apple is rumored to have leased 140,000 square feet at La Jolla Reserve during the third quarter, taking one whole building at 4401 Eastgate Mall that will be vacated by Cooley and two floors at 4435 Eastgate Mall. Apple had already leased space on two floors at La Jolla Reserve, and the new deal would bring the firm’s total occupancy at the campus to more than 160,000 square feet.
The recent deals for Apple in University Town Center could bring the company's local footprint to more than 700,000 square feet. And those deals have helped cement the third quarter as the strongest quarter for leasing activity in the market since the end of 2018.
As leasing activity is a leading indicator of future net absorption, the vacancy rate is expected to begin contracting in the coming quarters in University Town Center, which is likely a welcome sign for landlords, given that vacancy in the market has increased by 300 basis points over the past 12 months. The market's vacancy rate hit double digits in 2021 for the first time since the end of 2018 and has risen to 10.3% from a 10-year trough of 5.2%.
Although rent growth has remained afloat in University Town Center, this was one of the San Diego region's best-performing office nodes in the quarters leading into the pandemic, and stronger leasing activity should provide better momentum for stronger rent growth in the coming quarters.