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Kearny Mesa Jumps Toward Top of San Diego’s Busiest Office Hubs

Half-Year Stats Show Regional Dollar Volume Up, Transaction Count Down From Year Ago.

Parallel Capital Partners' recent purchase of the Sky Park office property helped make Kearny Mesa one of San Diego's most active office deal hubs so far in 2019. Photo: CoStar

Parallel Capital Partners’ $50.6 million purchase of the Sky Park office property has vaulted the stalwart Kearny Mesa neighborhood ahead of all but one of San Diego's most active areas for office property sales this year.

San Diego-based Parallel Capital said it acquired the two-building complex, spanning 203,258 square feet on 5.8 acres at 9275 and 9325 Sky Park Court, from New York-based private equity firm Blackstone Group this week. The 33-year-old property is 96% leased to tenants including Qualcomm Inc., Union Bank and Liberty Mutual Insurance. The buyer plans about $1 million in renovations.

Parallel Capital Chief Executive Matt Root said the property, which has close access to four major freeways, was attractive because of Kearny Mesa’s strong tenant demand, low vacancy rates and potential for surrounding new high-density mixed-use development as the neighborhood gets an update of its community plan in coming months.

These factors were also cited in other recent big Kearny Mesa deals, which have helped to make this central San Diego enclave the second most active area for office sales by deal dollar volume for the first six months of this year, according to CoStar data. The neighborhood is now only surpassed by red-hot University Town Center for office sales this year.

Kearny Mesa’s $168 million in office sales from 15 deals have helped propel it ahead of several other San Diego neighborhoods that have traditionally posted higher deal volumes, such as Rancho Bernardo and Carmel Valley. CoStar Market Analyst Joshua Ohl reported in May that San Diego office investment cooled slightly in the first quarter of the year following a decade high posted in 2018, even though local vacancies remain historically tight and job growth is still healthy.

CoStar data showed the San Diego region had $1.3 billion in total office sales resulted from 190 transactions completed between Jan. 1 and July 10, slightly up from the same period of 2018 when $936 million in sales were recorded from 214 transactions.

Here are San Diego’s Top 5 office neighborhoods based on property deal volume recorded this year, according to CoStar:

1. UTC ($603.5 million in sales) – It took just two big deals to put this high-demand neighborhood far ahead of the pack. The $513.5 million purchase of the neighborhood's La Jolla Commons by American Assets Trust was the biggest local commercial deal of any kind this year. It was followed by the $90 million acquisition of Genesee Plaza by JLL Property Trust. UTC is humming on all cylinders, including rent growth, tightening vacancies and large leases by tech and life science firms.

2. Kearny Mesa ($168 million) – This built-out, low-vacancy neighborhood has older properties than those found in places like UTC, but its location has recently drawn the interest of local and institutional investors willing to invest in renovations and redevelopments. Kearny Mesa snagged San Diego’s largest office lease of the first half of the year with a $148 million lease by the U.S. Veterans Administration.

3. Chula Vista ($113 million) – The South County city, second-largest in the San Diego region, has seen several medical office buildings change hands, as demand has remained strong throughout the region in the healthcare sector.

4. Carlsbad ($81.7 million) – This North County coastal city contains mostly low-rise, newer-vintage campuses that continue to spur arrivals and expansions by big tenants including satellite technology provider ViaSat Inc., camera maker GoPro and retailer Walmart’s tech-oriented operations. Many of these firms have younger workers drawn to the beach-centric lifestyle.

5. Sorrento Mesa ($59.4 million) – This central San Diego area has survived recent downsizings by chipmaker Qualcomm Inc., the region’s largest private employer, which has long been based there. "Rent growth picked up notably last year, as tech firms continue to expand into Sorrento Mesa's life science facilities," a recent CoStar market report noted. "And that momentum has carried over into 2019."

Some recent deals may not yet have been officially recorded or reported.

Article By: Lou Hirsch - CoStar

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