San Diego's Developers Look To Downtown And The South Bay For Growth

What is true in ancient Greece stands in today's San Diego’s CRE market: the only constant is change. Two panels at Bisnow’s Word on the Beach: San Diego’s State of the Market event, held at the Westin San Diego on Jan. 25, discussed a variety of market topics, chief of which was the question of what is next? Panelists discussed which neighborhoods are hot and which are ripe for future growth and development.

One panelist zeroed in on downtown’s East Village, which several developers have marked as a high-growth target. HP Investors principal Marc Stanworth said his company has gone all-in on downtown.

“We moved our office to the East Village, we’re drinking the punch and we believe in what it can be,” Stanworth told the audience.

Much of Stanworth’s sanguine outlook on the downtown neighborhood centered on his company’s development of the in-progress Makers Quarter, which will feature luxury apartments, office space, retail businesses and recreational spaces — the first project of its kind in the neighborhood.

“With the Makers Quarter we found great partners and have a unique opportunity. We have control of a big chunk of land, which is unique to an urban core. We were able to master plan and phase it in a way that helped to gentrify the neighborhood somewhat organically,” Stanworth said.

For Stanworth, the cachet of the project hinges on the confidence brought to it by high-profile retailers.

“The first apartment unit is coming online in May and we have two retail concepts that are unique,” he said. “Five years ago, there was not a whole lot going on in the area and we were able to paint the vision of what we were building to attract substantial retail operations. One is Punch Bowl Social, out of Denver. It will be 25K SF and bills itself as an ‘eater-tainment’ space with a large food and beverage operation and bowling.”

Stanworth frames the project as a clear benefit to the community, adding that the Punch Bowl Social space will occupy a former historic boxing ring, called The Coliseum, which for years was a furniture warehouse.

“We’re bringing that space back to the public,” he said. "You’ll all be there — no doubt.”

He also mentioned 10 Barrel Brewing, an AB InBev-owned brewery out of Bend, Oregon, that has made waves in San Diego’s robust craft brewing industry, fielding accusations that it is not a truly local operation. Nonetheless, Stanworth said the company is invested in the community, giving it credit for investing in the neighborhood before many local companies have taken the plunge. The viability of downtown development has been a hot topic in San Diego, particularly considering socioeconomic and structural issues in the area that still have not been adequately addressed by the city, like with San Diego’s homeless population.

Stanworth is optimistic.

“When things get tough, there are still a whole lot more bodies [in the East Village] today then there were five [to] 10 years ago. A lot of units are coming online, and they will get filled. We still believe in the urbanization of the East Village,” he said.

During a panel that focused on housing development and finance trends, panelists talked about how shifting demographics are driving development in neighborhoods that had previously been overlooked.

Malick Infill Director Andrew Malick discussed how demographic changes have caused him to look to neighborhoods outside of downtown, which allow him more of a blank slate to create the kind of housing he thinks is needed for specific populations. In particular, he has honed in on an influx of military personnel to the city, as well as non-military millennials, two demographics with needs that are closely aligned, he said. North Park and National City, in particular, are favored by Malick. The former is in the middle of vast redevelopment and the latter is being eyed for more.

“If you were to helicopter over traffic on the [Interstate] 5 in National City, you see there is a lot of traffic coming up the freeway and there’s that idea of, ‘you could be home by now.’ That’s driving demand, but also, it’s 50,000 troops that are being added to San Diego. It’s already a strained housing market and there is a need and a preference to be housed close to the military installations,” Malick said.

“I try not to design for one demographic, you expose yourself to risk if you focus on one demographic,” he said, referring to the small units that are fit for bachelor/bachelorette military buyers and renters. “That said, there’s such a strong demand for [that type of housing], that it’s hard to ignore. So, I think that a lot of the characteristics of what that young sailor needs are present in other demographics. The millennial generation is looking for the same qualities and characteristics — they are the sailor generation. I saw there was a demand for that housing type.” 

Baldwin & Sons President Shawn Baldwin said there is strong demand in the South Bay, something he identified years ago and is excited to see reflected in the current market. His company opened a Marriott Residence Inn in Otay Ranch in October, where he says the future looks bright.

“We looked at building six [to] seven years ago, there was a lot of question on whether or not the Chula [Vista] market could support a hotel. We were bullish on it and pushed forward, and all the numbers are outperforming,” Baldwin said.

He said there has not been a new hotel in Chula Vista in 25 years and already, three new hotels are scheduled to open within the next year, bringing the total rooms to around 600.

"We’re ecstatic to have been first to market, right now there is very high demand. It will be interesting to see what the market is like two years from now," Baldwin said.

"South County is the best value in San Diego in terms of rent," Murphy Development Executive Vice President Kaitlin Ardunio said of the South Bay's office market.

Because of that, Murphy Development is able to add a lot more attractive lifestyle amenities to buildings without needing to increase rent.

"Right now we're sub-75 cents a foot, whereas North County is much higher," she said.