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San Diego’s Old Town, Already Popular with Tourists, Now Pursues Office Tenants

Casey Brown Co.’s Redevelopment Among Latest Projects in Historic Neighborhood
June 28, 2018
Casey Brown Co. recently completed an extensive renovation of the Old Town Plaza office property, which it purchased last year.
Credit: Casey Brown Co.


Old Town is among San Diego’s most popular tourist neighborhoods, featuring an Old West-style promenade with a general store, authentic Mexican restaurants and well-preserved historical homes and hotels harking back to the city’s founding in the early 1800s.

In recent decades though, it has not been particularly thought of as a place for new office development. Local developer Casey Brown Co. and its brokers are betting they can change that, following the recent completion of a $3 million renovation of the two-building office park known as Old Town Plaza.

CoStar data indicates the developer paid $13.8 million in January 2017 for the 65,000-square-foot, 44-year-old property at 2251 San Diego Ave. According to Casey Brown’s brokers at JLL, the Spanish-style complex now has new common-area corridors, along with a conference room, kitchen and upgraded lobbies and restrooms.

At a time when everyone seems to be upgrading to meet the demands of the creative, co-working office culture, can this property and others in Old Town compete with those in more high-profile office markets with gleaming new buildings, like those found in downtown and University Town Center?

Brandt Riedman, a vice president in JLL’s San Diego office, notes that Old Town Plaza is already 70 percent occupied by tenants such as marketing firm Power Digital. Brokers recently signed Knockaround, which sells affordable designer sunglasses and is relocating from the city’s Barrio Logan neighborhood.

Riedman said the game plan going forward for Casey Brown, and likely other owners in Old Town, will be to continue pursuing the smaller technology and other startup firms and service providers that have been gravitating to older buildings in downtown San Diego in recent years.

He said he knows of at least two other owners of nearby Old Town office properties who are planning renovations to compete for the smaller firms, generally led by younger operators seeking out neighborhoods with a specific historical character to set up shop.

For numerous reasons, however, there’s no sign that Old Town is gearing up for a major wave of office tear-downs or new construction.

“Generally there hasn’t been a lot of office redevelopment happening recently in that area,” said Riedman, who is handling leasing of Old Town Plaza with JLL’s Richard Gonor and Tony Russell.

Most of the big recent projects in Old Town continue to be geared toward hospitality. T2 Development opened a 179-room Hilton Garden Inn on Taylor Street in late 2015, and Hotel Investment Group purchased a 10,000-square-foot office property on Moore Street in late 2016 with plans to convert it into an extended-stay boutique hotel.

Old Town’s offices have traditionally been older and low in supply. CoStar data shows a relatively minuscule current inventory of 3 million square feet for the submarket that includes Old Town and the adjacent Midway and Liberty Station neighborhoods.

Another factor is that office projects in Old Town must be low-rise in nature, due to local and federal height restrictions placed on development within the flight paths of nearby San Diego International Airport.

Riedman, however, said tenants have still been attracted by Old Town’s direct access to public transit – one of the city’s largest trolley and bus centers is located there – its proximity to the airport and its location near the spot where Interstate 5 meets Interstate 8.

Numbers from CoStar Market Analytics show the Old Town area’s office metrics generally benefiting landlords and tenants fairly evenly. While the vacancy rate of 6.2 percent is lower than the countywide 9.4 percent, the average asking rent is a relative bargain at $2.35 per square foot, compared with $2.65 for the San Diego region overall.

The neighborhood’s rent growth of 5 percent over the past year tops the regional rate of 2.7 percent. Still, those metrics have not made Old Town a magnet for property investors, with its deal volume of $11.9 million for the past 12 months down 40 percent from the prior year. Office space absorption for the past 12 months was a negative 16,300 square feet.

However, there are emerging signs that the submarket could attract more attention from office and other commercial developers in coming years. Adjacent to Old Town, on the opposite side of I-5, the U.S. Navy has begun informal talks with the city to eventually redevelop a large portion of the Navy’s Space and Naval Warfare Systems Command campus with commercial components.

In the neighboring Midway District, located near the San Diego Sports Arena and Liberty Station, developer Hammer Ventures is in early planning on a $325 million mixed-use project called The Point, to include residential and commercial elements on the former site of a U.S. Postal Service complex.



Lou Hirsh, San Diego Market Reporter  CoStar Group   
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