Hines, J.P. Morgan Begin Construction on 415 KSF Office Building in La Jolla
It’s round two for Hines at the master-planned La Jolla Commons in San Diego’s University Towne Center submarket. The real estate firm and its joint venture partner — a group of institutional investors advised by J. P. Morgan Asset Management — have broken ground on the mixed-use campus’s second office tower, a 415,000-square-foot building that will be occupied in its entirety by LPL Financial.
Size matters in certain parts of the San Diego office market. “In UTC as well as the rest of Central San Diego, we’ve seen a diminishing supply of large blocks of space and in San Diego a large block is 50,000 square feet or more,” Richard Gonor, an executive vice president with commercial real estate services firm Jones Lang LaSalle Inc., told Commercial Property Executive. “There’s a lot of tenant demand right now for these spaces; we’re tracking more than a dozen active requirements right now that are 100,000 square feet or more.
Hines erected the first La Jolla Commons office facility, a 300,000-square-foot tower, in 2008 in a partnership with TIAA-CREF. Of course, the 12.3-acre site provided room for much more and in January of this year, Hines laid the groundwork for expansion, recapitalizing the campus with the Hines-TIAA-CREF partnership’s sale of the property to the new Hines-J. P. Morgan joint venture. And there’s nothing like a build-to-suit to get a project off the ground. Plans for phase two took flight the same month, when LPL signed a 15-year deal to occupy the second building in one of San Diego’s largest lease deals ever.
AECOM is the designer behind the 13-story glass curtain-walled tower and Whiting-Turner Contracting Co. is overseeing construction as general contractor. Upon the scheduled mid-2014 completion of the project, LPL will gather its employees from seven office locations in the UTC submarket and consolidate them under its new roof at La Jolla Commons.
Numbers can be deceiving. The strong demand for ample contiguous space in San Diego belies the current statistics in the city’s office market. According to a report by JLL, the total vacancy rate for Class A space in San Diego during the first quarter was 16.7 percent, with nearly 4.5 million square feet of space available for the taking — apparently small blocks of available space. The call for sizeable expanses of office square footage is paving the way for an increase in construction activity this year, particularly in Central San Diego. “What’s happening there is there’s a premium that landlords are placing on those larger blocks of space, which is translating to landlords being able to pencil build-to-suits or even spec developments in some markets,” Gonor said. “We’re right at the front end of spec development and there is a handful of build-to-suits that are being negotiated within the Central San Diego market.