A trio of prominent developers started construction on a $400 million mixed-use project billed as a “skyline-changing” high-rise in downtown San Diego, though it faces considerable challenges on the ground, including a glut of available office space in the area.

Officials of Holland Partner Group, North America Sekisui House and Lowe said work began this month on a project called West, at 1011 Union St. on the former site of a county courthouse that was replaced by a new one last year about a block away.

The 37-story West is planned to include 270,000 square feet of offices, 19,000 square feet of retail space and 431 luxury apartments, with the developers anticipating completion in the first quarter of 2024. They're targeting office tenants including technology companies seeking larger spaces, generally 35,000 square feet and up.

“That offering has historically not existed in the downtown market,” Brent Schertzer, manager director for Holland Partner Group, said in an email to CoStar News. “We hope to attract technology firms looking for a highly amenitized and uniquely curated project, in addition to more traditional office tenants, such as law and financial service firms looking to be located in the urban core.”

The development team is going up against several large downtown projects already underway and seeking to attract the same tenants, including drawing from the region's cluster of tech and life sciences firms that are now nearly nonexistent downtown. Developers looking to change the mix with downtown projects include Stockdale Capital Partners, IQHQ and Kilroy Realty Corp.

The area's office stock is generally older than that of competing neighborhoods to the north, including University Town Center and Del Mar Heights. Downtown was also dealing with rising office vacancies well before the pandemic, and its vacancy rate of 24.3% is historically high and well above the regional average of 11.5%, according to CoStar data as of Feb. 17.

“Can downtown take more of that space? Well, that’s a great question since the vacancy rate is already trending at 24% and there hasn’t been any recent momentum of demand increasing here,” said Joshua Ohl, director of market analytics for CoStar Group in San Diego. Ohl noted that the West project is being built in a downtown area that already has 1 million square feet of newly renovated office space sitting vacant.

“On the other hand, there are a lot of workers renting downtown’s luxury apartments, which provides a built-in workforce for companies that locate there, and few areas of San Diego offer the cultural and entertainment amenities that downtown does,” Ohl said.

Looking for a Big Name

As with the life science space now being developed elsewhere downtown, Ohl said it may take a large, big-name tenant to lease space at West and other new projects to provide some tailwinds for further office demand.

Office tenants are not yet signed, but West’s developers are betting that downtown’s rising residential population, including a high proportion of younger workers, will spur more companies to come downtown in search of newer-style offices and related amenities currently not available in older downtown offices. Developers also point to downtown’s mass-transit access, which is generally more extensive than in most San Diego neighborhoods.

“While we have no crystal ball to predict where the economy will be in 2024, the larger macro and micro trends look to favor the further recovery and economic growth that will bode well for this project,” Schertzer said. “The demand for housing remains stronger than ever and we see that need persisting in downtown, especially as new employment growth occurs and employees look to limit their commute to work, while enjoying the amenities and lifestyle downtown San Diego offers.”

Downtown San Diego has long been among the region's most active areas for apartment development, and its current apartment vacancy of 8.3% is also above the regional average of 2.2%, CoStar data shows. However, newer downtown apartments have generally been leasing at a brisk pace over the past year, with rents rising 11.7%.

Vancouver, Washington-based Holland Partner Group has built several multifamily projects in downtown San Diego and other West Coast cities over the past two decades. It is joined in the West project by Los Angeles-based Lowe, a national real estate development and management firm, and the North American subsidiary of Japan’s Sekisui House Ltd., which has completed several U.S. mixed-use and master-planned developments.

Plans for West include an open first floor “modeled after a contemporary hotel lobby” with indoor and outdoor dining venues. Developers also plan several indoor-outdoor work and meeting spaces, designed to upgraded health standards spurred by the pandemic, along with a dog run with pet washing facilities.
Developers are looking to sign up specialty ground-floor restaurants and shops, and the building will also have open-air decks with meeting spaces and panoramic views on its roof and ninth floor.