Class A Office Leasing Is Surging in San Diego
March 1, 2022
Demand Is Rising Along State Route 56 Corridor
Demand for Class A office inventory in San Diego has accelerated since the end of 2021, driven in large part by expansionary biotech firms in the Del Mar Heights and Carmel Valley neighborhoods.
During the first six quarters of the pandemic, from the second quarter of 2020 through the third quarter of 2021, nearly 9 million square feet of new leases were signed in the San Diego office market. Although leasing activity picked up during the third quarter of last year, reaching the highest level of the pandemic at that point, that six-quarter stretch equaled the average annual leasing volume between 2017 and 2019.
From the second quarter of 2020 through the third quarter of 2021, demand for high-end inventory accounted for 34% of total leasing volume, just shy of the average level of leasing activity for that slice in the three years ahead of the pandemic, when it averaged closer to 38% of leasing volume.
But beginning in the final quarter of 2021 through the end of February, leasing in four- and five-star inventory has accounted for 54% of total leasing volume in San Diego, or 2.1 million square feet.
Two of the biggest office leases in the past decade were signed since the end of 2021, both for new construction along the state Route 56 corridor in Carmel Valley.
As the first two buildings at Aperture Del Mar were finishing construction at the beginning of 2022, Neurocrine Biosciences leased those two buildings and preleased three more at the campus, totaling more than 630,000 square feet. That deal will mark a significant expansion for the firm from within that part of town, where it currently occupies roughly 230,000 square feet. The biotech firm intends to place that space on the sublet market in 2023.
At the end of 2021, BD Biosciences preleased 220,000 square feet at Torrey View, a new lab campus being built by Breakthrough Properties, also along the state Route 56 Corridor. The biotech company already occupies a significant footprint in San Diego, and this will be an addition to that space.
Breakthrough Properties broke ground on three buildings in the campus that total almost 520,000 square feet in the fourth quarter, with the balance of 300,000 square feet in two buildings still available.
Given recent demand, that could lead to an uptick in development along state Route 56. There are two campus proposals of similar scope along that corridor by Seabreeze Properties for Merge56 and Kilroy Realty’s Santa Fe Summit that are geared toward tech, life science and medical firms.
Those deals came on the heels of several others from life sciences firms in the Del Mar Heights and Carmel Valley neighborhoods in the third quarter of last year as demand is expected to remain strong for the area.