Two neighboring downtown high-rises — at one time bank headquarters — have been sold for a combined $167.2 million.
Together, the two transactions present a 63.6 percent increase in value over the two prior sales, a reflection of the tightening downtown office market.
The 530 B Street building sold for $57.7 million to San Francisco-based Swift Real Estate Partners, according to the CBRE brokerage that represented the buyer. The building’s current vacancy rate stands at 87.8 percent, according to CBRE.
The seller, Bosa Development, had bought the 232,936-square-foot, 24-story building for $53.2 million in February 2016. The Canadian company, best known for luxury condo towers downtown, had acquired the building as an investment.
Key tenants include Union Bank, the San Diego Regional Economic Development Corp., National Conflict Resolution Center and a variety of law firms, communications companies and personal services.
The building originally opened as the headquarters of the First National Bank Building in 1966 and was designed by the firm known today as Tucker Sadler Architects.
The 600 B Street Building sold for $109.5 million, according to Holliday Fenoglio Fowler brokerage, which represented the sellers, Lincoln Property and Angelo, Gordon & Co. However, CoStar listed the price at $99.2 million.
The previous sale price was $49 million in 2012. The buyer was Rockwood Capital, based in New York City.
Opened in 1974, the 24-story, 359,278-square-foot high-rise was the headquarters of San Diego Federal Savings & Loan Association. It sold for only $6 million in 1995 in the wake of the failure of the S&L, renamed Great American Bank. Deems, Lewis & Partners was the architect.
Lincoln bought it for $49 million in 2012 when it was heading for a major drop in vacancy caused by the pending departure of city water and engineering departments.
Currently, the 600 Street Building is 89.7 percent leased with key tenants that include The San Diego Union-Tribune, MiTek and WeWork.
Nick Psyllos, HFF senior managing director, said in a statement that the buyer of 600 B Street considers the building an asset because of the expected “tremendous future with the resurgence of the downtown San Diego market.”
CBRE broker Louay Alsadek said that 530 B Street attracted buyer interest because of a “significant decrease in vacancy” downtown and a growing population in the area.
CoStar reports downtown’s overall vacancy rate at its lowest in the last 10-year period — 11 percent — down from a high of 17.1 percent in 2012.
A 10 percent vacancy rate typically indicates that more construction is needed, but no major high-rises have been announced.
That may be because developers have been unable to prelease 50 percent of a prospective building — the standard minimum lenders expect — said local commercial real estate consultant Gary London.
“We have yet to see interest on the part of a large ‘gorilla’ tenant in downtown, somebody that would take down in excess of 300,000 square feet,” London said.
Demand currently comes from tenants wanting no more than 50,000 square feet, the equivalent of two floors of a full-block office tower.
In the last 20 years, London said, only about 700,000 square feet of offices has been built downtown out of 29 million square feet regionwide.
The bulk of new office development has clustered around tech and biotech employment centers, from La Jolla to Carlsbad, which are relatively close to suburban housing.
However, three factors may make downtown once again the region’s preferred central business district, according to London:
- The younger generation of tech workers prefers to live in urban centers, and employers want to go where the talent is, as has been noted in San Francisco and Seattle. In San Diego, meanwhile, such workers are forced to commute from their hip downtown condos and apartments to office parks in Torrey Pines Mesa, Sorrento Mesa and Del Mar Heights.
- The arrival of a UC San Diego outpost by 2021 in East Village may convince companies to locate nearby and create a cluster that grows as it has done around the main UCSD campus.
- The advent of autonomous vehicles in the next decade may lower costs of development by eliminating the need for parking garages.
In a sense, downtown is catching up with the burbs in terms of housing units and population.
“That’s why I’m fairly optimistic that downtown is the next market to see some dynamic development occur,” London said.
But for the next five years, he said he expects the market to tighten until at least one developer is able to lure a big tenant to anchor a new building.
For now, tenants can expect space to tighten and rental rates to grow from their present average asking rate of $2.51 per square foot per month. The best spaces are going for $4 to $5 per square foot per month — a rate high enough to cover construction costs, London said.
email@example.com; (619) 293-1286; Twitter: @rogershowley