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Lease Rates Decline in Some Local Submarkets

Lease Rates Decline in Some Local Submarkets

Ribbon Cut for Gateway Chula Vista Complex

REAL ESTATE by Mandy Jackson, Staff Writer

In some submarkets around San Diego County, office building lease rates have declined this year as vacancy has climbed.

However, some submarkets are seeing stable and even increasing lease rates as some factors make those markets more attractive, according to brokers who discussed the local office market at a June 11 meeting of the San Diego chapter of the Building Owners and Managers Association.

Chris Pascale, senior vice president at CB Richard Ellis in San Diego, said the office vacancy rate in Carlsbad is about 20 percent. Lease rates have fallen slightly this year to a range of $1.95 to $2.15, plus utility expenses, per square foot per month for Class A office space, and $1.75 to $1.90 for Class B product, Pascale reported.

However, even Kearny Mesa, with its low 7.3 percent vacancy rate, has seen lease rates drop 10 to 20 percent to a range of $2 to $2.25 per month for Class A and $1.85 to $1.95 per month for Class B space, he said.

Sorrento Mesa , one of the submarkets hardest hit by the tech wreck , is resting at 14 percent vacancy so far this year. Pascale said lease rates have fallen 10 to 15 percent to $2.25 to $2.35 for Class A and $1.95 to $2.05 for Class B space.

Rancho Bernardo has a 10.4 percent vacancy rate, but lease rates are at an all time high at $2.45 to $2.85 for Class A and $1.85 to $2.25 for Class B space, according to Pascale.

“The reason for this is purely traffic in the morning,” he said. On Interstate 15, traffic doesn’t back up during the morning rush hour until south of Rancho Bernardo.

Lynn LaChapelle, a senior vice president at San Diego-based Burnham Real Estate Services, said vacancy in University Towne Centre is 17.7 percent as of the first quarter of 2002. Mission Valley is only 8.1 percent vacant.

“I think the bleeding has stopped,” LaChapelle said. Few new sublease spaces have come on the market this year, she noted.

LaChapelle expects lease rates will stabilize in UTC in 2002. For Class A properties, rents top out at $3.20 per square foot.

In Mission Valley, Class A rents are around $3.25 plus electricity expenses. “It’s growing slightly because the vacancy rate is below 10 percent,” LaChapelle said.

Ben Schwartz, senior vice president at San Diego-based SENTRE Partners Inc., said vacancy in Downtown San Diego’s 9 million-square-foot office market is about 10 percent, as it has been for the past three years.

Lease rates range from $1.80 to $3 per square foot. Schwartz predicted rates would remain steady as owners see their asking rents are comparable to other submarkets in the county.

Of three major office projects planned for Downtown , developed by Lankford & Associates Inc., Catellus Urban Development Corp., and JMI Realty , Schwartz predicted that San Diego-based Lankford’s 26-story, 430,000-square-foot Broadway 655 would be the most likely to break ground this year.

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Ribbon Cutting: Gateway Chula Vista LLC recently cut the ribbon for the office complex at its Gateway Chula Vista mixed-use development.

The developer, a partnership of commercial real estate developers led by San Diego-based Mountain West Real Estate, is building an $80 million office and retail complex on the northwest corner of Third Avenue and H Street in downtown Chula Vista. The city is investing up to $7.3 million in the project.

A ribbon-cutting ceremony took place June 7 and a grand opening party was held June 8.

The 346,000-square-foot project will be constructed in three phases. The first phase was completed in April. It includes a five-story, 40,079 square feet Class A office building, a four-story parking structure, and 62,180 square feet of retail space.

Phases 2 and 3 will have two six-story buildings totaling 240,000 square feet. Construction is expected to begin in the fall of 2002 on the second phase. The third phase will begin construction in the summer of 2003.

Mountain West is leasing and managing the property.

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Design Contract: Howard Sneed Architecture and Design of San Diego has been selected to design a 172,000-square-foot corporate headquarters facility for San Diego-based AMN Healthcare on High Bluff Drive in Del Mar.

Howard Sneed designed AMN’s current headquarters nearby on El Camino Real.

Construction is expected to cost between $7 million and $7.5 million.

Nathan Dean and Elizabeth Stewart of Howard Sneed will assist principal Brian Koshley in the design project. Laurie Park of AMN will be the project manager. Kirt Gilliland of The Irving Hughes Group will be the construction manager.

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Safety Awarded: San Diego-based Douglas E. Barnhart Inc., a general contractor and construction manager, has been commended by the national Associated General Contractors for an excellent safety record.

Barnhart was awarded for its zero incidence rate in the construction manager category for companies with 50,000 work hours or more. The company’s incidence rate was at least 25 percent below the rest of the construction manager division and the building contractor division of AGC.

Send residential and commercial real estate news to Jackson via fax at (858) 571-3628 or via e-mail at mjackson@sdbj.com. Call her at (858) 277-6359, Ext. 114.

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