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Even though the vacancy rate for downtown office space is the lowest it’s been in years, most developers and investors building in East Village are still sticking with the safer bet: apartments.
There’s a problem with East Village’s rapid transformation into the urban center imagined by developers and planners as a place where residents can live, work and play.
They forgot about the work.
Sumeet Parekh, managing partner of HP Investors, a development firm behind several new and planned East Village developments, said the lack of office space is a problem.
“I don’t think that anybody really wants East Village to be another bedroom community in San Diego,” he said. “Everybody wants it to be a live, work and play development, and the work is what ties the system all together. You have to have people in and activating the streets at all times during the day, not just driving out in the morning and coming back in the evening.”
Plus, the dearth of office space in East Village could make it hard for retail businesses and restaurants to survive, Parekh said.
His firm is about to break ground on a new building at 15th and F streets that will add about 45,000 square feet of office space to East Village. The firm has another planned project on the east side of Sixth Avenue that would add an additional 50,000 square feet for offices.
The average office space per employee is about 200 square feet, meaning those two projects would likely accommodate fewer than 500 workers in East Village.
Civic San Diego, the agency that oversees downtown development, also required office space in two East Village projects on Market Street – Cisterra Development’s building at Seventh Street and Holland Partner’s project at Park Boulevard, which will house UC San Diego’s new downtown outpost.
All that office space combined, though, is just a pittance compared with the approximately 6,500 residential units being built in East Village in coming months, and the thousands more that have come online over the past few years. Planned office space in East Village represents just 2.3 percent of the 13.5 million square feet of office space in all of downtown.
Sempra opened its new East Village headquarters in 2015. Outside of that project, downtown hasn’t seen a new office building in a decade.
The last office building to go up was Diamond View Tower, a hip East Village workspace that is fully leased and commands some of the highest rents in all of downtown. That building has attracted several online marketing firms and tech companies.
Generally speaking, if you work downtown, you don’t work in East Village, despite its “live, work, play” moniker.
Developers say part of the issue is that there’s much more demand for new housing in San Diego, which makes it easier to finance a residential project. Plus, living units can be rented up quickly, while it takes longer to find business tenants. It all makes building new office space riskier, so even though the vacancy rate for downtown office space is the lowest it’s been in years, most developers and investors are still sticking with the safer bet.
The developers behind East Village’s IDEA1 mixed-use project had plans to build office space, but converted most of it into residential because they couldn’t find businesses to pre-lease the space.
“We have the ability to convert residential floors back to office if the market supports that use at some future date,” David Malmuth, one of IDEA1’s developers, said in an email. “We like that the building can adapt as the market changes.”
Some people think it’s hard to find businesses that want offices in East Village because of the neighborhood’s growing homeless problem. Others, like Frank Wolden, an urban designer with an office in East Village, said the lack of business interest in East Village is more of a perception and marketing problem.
“The city needs to be more aggressive on promoting the vision as East Village as a dynamic workplace,” he said.
Stacy Meronoff, who heads leasing at the Diamond View office tower in East Village, said he thinks the demand for more office is there, but developers need to build the cool and creative spaces that tech companies want.
“I do think we’re getting to a point where new construction for office buildings is warranted,” he said.
East Village’s dearth of office space lies in stark contrast with the other neighborhoods in downtown San Diego, which are saturated with office space but have few workers who live nearby. According to a report commissioned last year by the Downtown San Diego Partnership, about 81,000 people work downtown, but only 3.8 percent live there as well.
Kris Michell, CEO of the Downtown San Diego Partnership, said she remembers when getting people to live downtown was a hard sell. When the first two residential high-rises opened in the neighborhood, just a handful of people lived there for the first few years.
“We started out incredibly concerned about residential not wanting to be downtown,” Michell said. “It has always been a heavy office market and getting residential was so hard. Twenty years ago, we’d say, ‘Gee, how are we going to get anyone to live downtown?’”
She said she’s not worried about the heavy residential boom in East Village – the neighborhood is just following a normal development cycle.
There’s also a significant number of people who will live and work in their East Village apartments, she said, and a good chance that creative co-working office spaces could pop up in some of the retail space being built. The low office square footage in East Village doesn’t worry her, in other words, because she thinks some of the retail and residential space could become offices in the end.
Michell also pointed to her group’s study, which found young people entering the workforce want to live and work in downtown neighborhoods like East Village, so it’s only a matter of time before employers start moving there to attract young talent.
The city also requires developers to include office space in its employment zone, which stretches into portions of East Village.
“We’ve done such a good job of attracting the residential that now it’s just about finding that balance,” Michell said. “There’s not a big concern, however, we do recognize that we want to see as much office as we can because we know we don’t want to become a bedroom community.”