Boomtime For The San Diego Suburbs, But Construction And Housing Costs Are Putting The Squeeze On

The growth of suburban San Diego, both north and south, has been strong in recent years, even as the resurgence of Downtown San Diego has been getting most of the attention. 

According to the speakers at Bisnow's Future of San Diego Suburbs on Tuesday, businesses and residents want to be in the suburbs, but costs are escalating — just as they have in Downtown San Diego in recent years — in ways that are putting the squeeze on the suburbs.

The North County suburban speakers said employers are attracted to this part of the San Diego market because they can still afford the office space and employees can afford to live here — for now. 

Rents are competitive, at least compared with other metro San Diego markets and other parts of California, though not so much with other parts of the country. Suburban office and residential space in the North County can also offer the amenities that people want.

That could change. Like other parts of the San Diego market, construction costs are high and so are the obstacles to getting new space developed: NIMBY sentiment, misused environmental regulations and more.

It is possible, the speakers said, that in the not-too-distant future, residential growth in the suburbs will come to a halt. Also, the cost of housing close to workplaces will accelerate to the point that commutes to affordable areas will be too far even by California standards.  

Commutes are already tough, and while a place like Carlsbad might be affordable compared with other parts of California, if workplaces are too far away, people aren't going want to live there. 

There needs to be a spectrum of housing throughout the suburbs, the speakers said. Right now the distance between workplaces and housing that people can afford and a simple lack of workforce housing are impeding growth in all of San Diego's markets.

People still drive in the San Diego suburbs. They might take Uber and Lyft, but those services haven't remotely started to replace private vehicle ownership and use.

Thus an office property without a decent parking count isn't going to lease, according to the speakers. Fortunately for the North County, there is usually space for parking, either in new developments or redevelopments.

Suburban properties are also competitive when it comes to amenities, the speakers said. As companies graduate from coworking into more standard office space, landlords are doing their best to accommodate them.

Suburban property managers are trying to make the tech in their buildings as seamless as possible, so it doesn't make users feel like they have downgraded when they come out of coworking space. Landlords want to create that connection with the tenants, the speakers said.

The growth of suburban markets has come in the context of what has happened in the city, the South County suburban speakers said. In the last 10 years or so, Downtown San Diego has set the tone for the suburbs.

The Downtown San Diego boom is part of the reurbanization of America, fueled by the attraction of the live-work-play lifestyle. There is a lot of interest from companies, much more than even 10 years ago, to be in an urban, walkable environment. 

Suburbs that can offer some of that live-work-play are going to be more successful in attracting companies and residents, especially if their costs are lower. That is because the cost of living in the city has skyrocketed.

The trouble is, costs are going up in the suburbs as well, the speakers said, reiterating what the previous panel said. Land costs, fees and especially construction costs are threatening to kill development both in South County and elsewhere. Increasing rents won't sustain these costs forever because rents can only go so high, and they have already gone very high.

The costs of development in California and in San Diego are off the charts, and the system is challenged and maybe even broken, the speakers said.

The economy is at full employment nationwide, and that is no different in San Diego. That is putting enormous pressure on the cost of construction labor, and making it hard to keep workers on the job, since they are tempted to leave for positions that pay more. 

There are glimmers of hope that the acceleration of costs will slow down or even stop. The trouble is, it might take a recession to make that happen, the speakers said.

Cushman & Wakefield Executive Managing Director Aric Starck spoke about the space in which the event was held: Atlas at Carlsbad.

The property used to be the 260K SF manufacturing facility for Upper Deck baseball cards. The company shut it down during the last recession and the property sat vacant for about five years, because it was functionally obsolete and it had no parking, Starck said. 

In 2014, Regent Properties started the redevelopment, reconfiguring the space. Atlas at Carlsbad is now a 235K SF creative office project consisting of a 90K SF two-story office building and a 145K SF single-story creative office building. 

Regent built a paseo between the two buildings that includes an outside amphitheater with stadium seating, multiple break-out meeting areas, lounges, a café and a fitness center.