I-15 Corridor Leads San Diego County

SAN DIEGO-All of its neighboring submarkets have registered negative activity thus far this year, but the I-15 Corridor has managed to absorb 188,589 sf of office space during tough times economically and a generally flat-to-down trend in leasing throughout San Diego County. News of the performance of the Interstate 15 Corridor– which is the main north-south artery–is painted as a “growing bright spot” in a Cushman & Wakefield Inc. report.

The just-released C&W report shows the I-15 Corridor led all areas of the county with its direct positive absorption. The next best-performing area was Carlsbad with 119,416 sf of positive absorption. All other submarkets reported negative activity “as the county continues to adjust to corporate belt-tightening in the wake of slower economic growth,” the C&W team says.

Among the high-profile tenants taking space in the corridor are Sony, Yahoo! and the Paradigm Group, all of which are expanding their San Diego presences with locations at the Point in Rancho Bernardo. Chase Manhattan has reaffirmed its commitment to the area by renewing its 127,000-sf lease in Bernardo Heights Corporate Center.

Tom van Betten, a C&W director, explains that, even though office leasing activity has slowed countywide, most companies recognize there is a limited supply of land for development. And if the potential for future expansion is an issue, they must consider locating in the I-15 Corridor, he says.

Van Betten says that developers have been quick to recognize the potential of the I-15 Corridor market and have responded with class A corporate campuses. For example, Granum Partners of Los Gatos, CA has just finished construction on the first of three class A buildings in the 330,000-sf Bernardo Terrace Corporate Center.

“We saw tremendous opportunity in this niche market, which soon will rank on a level with Del Mar Heights [another popular class A market in the county],” observes Greg Eger of Granum. He says the I-15 location benefits from a plentiful supply of executive and workforce housing, which is a key selling point for companies whose employees are struggling with rising costs of fuel and transportation.

Eger echoes van Betten’s observation that companies looking to expand in the future will find few choices, other than the I-15 area, able to accommodate growth. “For any company who anticipates future growth with space needs above 25,000 sf, there is a very limited supply,” he says. “Once the economy turns, there will be pent-up demand for quality space in good locations, but the hiatus in new construction means this demand will fall well short of supply.”

Another company involved in the I-15 Corridor is San Diego-based Cisterra Development, which has a track record of national and local development including the class A DiamondView Tower in Downtown San Diego. Cisterra has plans to redevelop and expand the Point in Rancho Bernardo into a 500,000-sf class A corporate campus to meet the projected needs of image-conscious corporate users.

Jason Wood, senior vice president with Cisterra, points out that in recent years Del Mar Heights has been the preferred location for top-tier tenants, with demand helping to push rental rates to $4 per sf or more. The new premier developments in the I-15 Corridor “are positioned very well” in comparison to the product in Del Mar Heights, Wood says, but they have the added benefit of asking rates of approximately $1 per sf per month less.

C&W research shows the average direct class A asking rents in the I-15 Corridor stand at $3.03 per sf per month, on par with last year at this time. Van Betten says companies “are acting now to lock in space that they know won’t be available down the road, particularly at these rates.”

Besides the high-profile tenants like Sony and Yahoo!, other recent I-15 Corridor newcomers are Bridgepoint Education, Lockheed Martin, National Pen, Carl Zeiss and Marvell Semiconductor. Those companies combined have signed more than 507,400 sf in leases valued in excess of $162 million, all for Scripps Ranch buildings.

Kilroy Realty, a Los Angeles-based REIT that historically has been a key player in Del Mar Heights and the SR-56 area, is nearing completion on the third and last buildings for its 434,000-sf Kilroy Sabre Springs campus along Evening Creek Drive. The 154,000-sf project is 100% leased to Bridgepoint Education. Other tenants within the campus include Bank of America, Raymond Jay Lucia Cos. Inc., Liberty Mutual and 1st Pacific Bank.

In addition to leading San Diego County in leasing activity, the I-15 Corridor also leads the region in new construction with more than 1.1 million sf under way. These projects include the Summit at Rancho Bernardo, where the first building in a 75-acre redevelopment and expansion project is under construction. Additionally, Sony is under way on its 450,000-sf, 11-story headquarters tower along Via Esprillo in Rancho Bernardo with completion slated for December 2009.

In other development, Bernardo Terrace Corporate Center just delivered its first 110,000-sf building. Its other two buildings will go up in phases or build-to-suit basis. The project sits on 27 acres overlooking the Rancho Bernardo landscape, Lake Hodges and I-15.