Making a Bid for Business in Carlsbad : Industrial Park Is Slowly Developing a Name for Itself

Lacking glass high-rises, large modern sculptures and nightly laser shows, the 3,300-acre industrial and office district near Palomar Airport in Carlsbad is not nearly as noticeable as the Golden Triangle district that sits 20 miles to the south.

The Golden Triangle is easily seen from highways that form its outer boundaries. But many of the buildings near Palomar Airport are tucked into the rolling hills east of Interstate 5.

“You could live in Carlsbad and drive by here every day and never see half of the office buildings,” said one local broker.

Local developers prefer to cite the area’s “campus-like” environment. And thanks to bike paths and well-manicured lawns and trees, the relatively isolated area does have the feel of a high-tech college campus.

Except it’s a very, very big college campus, with more than 3 million square feet of research and development and industrial space and 1 million square feet of office space nestled into the hilly terrain.

Just Beginning

The area is still in its infancy, and the City of Carlsbad expects the 3,300-acre tract, which contains three industrial zones, to include more than 22 million square feet of office, industrial and commercial space by the year 2020.

“This is going to be the business complex of North County,” said Michael Dunigan, vice president of The Koll Co., which recently sold its 560-acre Carlsbad Research Center, within what is known as the Palomar Airport industrial district, to Union Pacific Realty Co. for $57 million.

Developers described Carlsbad, which is strategically located between the City of San Diego and Orange County, as a city that is ideally suited to assume the role of a corporate mecca, thanks in large part to its residential housing base along the coast.

It already is home to large corporations, including Chrysler and Hughes Aircraft, as well as smaller manufacturing companies, such as Taylor Made Golf Co.

Many of the companies are transplants from the City of San Diego or Orange and Los Angeles counties. They have been lured to Carlsbad by competitive rents, relatively low land prices, the nearby airport and a relative lack of congestion.

“Industrial land prices are $2- to $3-a-square-foot lower than Rancho Bernardo and $3 to $5 lower than Sorrento Mesa,” said Frank Rice, vice-president of Bedford Properties, which is developing the 77-acre Palomar Oaks Business Park, as well as 150,000 square feet of office space in the Palomar Triad complex.

“In Orange County there is a very limited amount of land available under $10,” Rice said. “There is ample land in Carlsbad starting at (about) $7.”

Set Area Aside

The Carlsbad City Council purposely created the industrial region when it approved the city’s General Plan in 1974. An “airport influence area” was established around Palomar Airport, restricting residential development within its boundaries. That zone also encouraged the concentration of industrial and office development in the area, providing a healthy tax base for the growing city.

“Residential development doesn’t always pay for itself,” said Carles Grimm, Carlsbad assistant planning director. “The city wanted a balance of industrial and residential. And they didn’t want the industrial scattered, having an impact on traffic throughout the city.”

The city didn’t give industrial developers a free rein, however. It imposed a 35-foot height restriction on buildings, and the development fees are “verging on having a negative impact,” Rice said.

In addition to normal development fees, builders in the area are required to pay a traffic impact fee, bridge and thoroughfare fees, and a public facilities fee equal to about 2.5% of the building’s valuation, to help pay for upgrading local roads, sewers and other public facilities.

Local developers love to grumble about the high fees, but they also acknowledge that Carlsbad seems to have passed through the most intense of the slow-growth debate that has bogged down development elsewhere in San Diego County.

Growth-Management Plan

In 1986, the Carlsbad City Council passed a growth-management plan that effectively tied the rate of growth in the city to the construction of public facilities. A hard-fought debate within the community later the same year over two slow-growth ballot measures resulted in the City Council adopting the council-sponsored initiative, which establishes population caps in different areas of the city.

“The city has grabbed the bull by the horns in dealing with growth,” said Rice of Bedford Properties. “It’s not perfect, but the ground rules have been clearly established.”

And, the restrictions and fees have produced benefits. The city is using fee income to turn Palomar Airport Road into a six-lane highway that includes an 18-foot-wide median strip and bike lanes.

That road connects with El Camino Real, which like Palomar Airport Road, has been designated as one of the city’s two “prime arteries.”

The intersection of Palomar Airport Road and El Camino Real eventually will be “the hub of the North County,” according to Dunigan. El Camino Real connects the business park to Encinitas, La Costa and Oceanside; Palomar Airport Road to coastal Carlsbad and, to the east, San Marcos and Vista.

‘Centrally Located’

“It’s very centrally located to labor,” said Dunigan. “You have the worker bees living in San Marcos and Vista and then you have the executive labor pool in Rancho Santa Fe.”

Because of where they live and work, those employees and executives are not generally bothered by rush-hour traffic that jams roads elsewhere in the county.

In contrast, Sorrento Mesa has plenty of open land, “but you already get the feeling of congestion, that the roads are full, when you drive through there during rush hour,” said Ron Davidson, personnel director for International Totalizator Systems, which manufactures betting equipment. ITS last year moved from Sorrento Valley to a 41,500-square-foot building in the Carlsbad Research Center.

Competitive lease rates and the ability to easily expand were major factors in ITS’s decision to move to Carlsbad, but the traffic problems starting to plague the city of San Diego also entered their decision-making process.

Other companies move to Carlsbad simply because the executives enjoy living in the area.

“At the time we wanted to move, several of our executives were already living in the San Diego area,” said George Henning, president of Transamerica Financial Resources, a securities brokerage that recently moved from the Los Angeles area into 12,000 square feet in the Palomar Airport area. “We wanted to keep our management team intact, so we thought we’d bring our facilities down here.”

The flow of companies into the Palomar Airport industrial district has been steady. Last year 192,000 square feet of office space and 497,000 square feet of industrial space was filled in the Carlsbad area, according to statistics provided by Grubb & Ellis Real Estate.

Vacancy rates have hovered around 20% in industrial space and 37% in office, according to Grubb & Ellis. Those vacancy rates are high, but they are consistent with rates in the Sorrento Mesa and Rancho Bernardo areas, which are also feeling the effects of a surge in building.

Jay Alexander, a researcher for the Torrey Urban Research Institute, expects another 494,000 square feet of office space and 341,250 square feet of industrial space to be developed within the Palomar district during the next two years.

But leasing should stay strong, he predicted, with industrial vacancy rates dropping as low as 10.7% and office to 23% by the end of 1989. TURI, which inventories buildings of all sizes, shows lower current vacancy rates than Grubb & Ellis.

Rents for office space in the Palomar Airport area average about $1.22 a month per square foot, including concessions, according to TURI. Industrial space rents for an average 47 cents a square foot. Both rents are higher than other North County areas.

“Industrial space in Oceanside rents for about 43 cents a square foot, with a $3 per square foot tenant improvement allowance,” Alexander said.

If the Palomar Airport area has a shortcoming in its battle with San Diego and Orange counties to attract companies, it is the lack of restaurants and hotels. Except for the Olympic Resort Hotel and a few delicatessens, there is nothing in the isolated area, “not even a place to buy a ball point pen or magic marker,” said Norman Kerlin, an office property specialist with Grubb & Ellis.

However, the city’s final plans call for more than a million square feet of commercial and retail space in the Palomar district. “We won’t get the hotels and restaurants until there is enough density here to support them,” said Koll’s Dunigan. “We’re now getting to the critical mass needed to put those in.”

Although it sold the Carlsbad Research Center, Koll retained ownership of many of the buildings, as well as management responsibilities of the park.

“We’re very bullish on the area,” said Dunigan. “In 20 years we’ll be able to look at this area as one of the better high-end areas to be in.”