Murphy Development-IMG_0254-4x5 VWritten by Carrie Rossenfeld  |  Read below or at GlobeSt.com
SAN DIEGO—With industrial vacancy getting close to all-time lows, redevelopment opportunities are very hard to come by, Murphy Development’s SVP and director of marketing Andy Irwin tells GlobeSt.com. As he prepares to speak on the “Development, Redevelopment and Adaptive Reuse” panel during RealShare San Diego on May 28, we spoke exclusively with Irwin about some of the redevelopment trends he’s noticing in the San Diego market.

GlobeSt.com: What are the most common types of redevelopment projects you’re seeing in San Diego?

Irwin: As the market picks up momentum, we are seeing more new development and redevelopment projects occur. While there seems to be an insatiable appetite for well- located multifamily and mixed-use projects, new office and industrial projects are now under construction to meet a robust tenant demand in a supply-constrained market. As a developer of office, industrial and R&D product, we are closely tracking rents to reach a point where new projects will pencil. San Diego has lagged behind other West Coast markets in the rebound, but tenant demand has reduced vacancies to near peak of the market levels, resulting in acceleration of rent growth.

While we saw a handful of specialized manufacturing and corporate-headquarters build-to- suits delivered to the market during the downturn, there are numerous spec developments across the commercial spectrum in the planning and construction stages. There are a couple of speculative class-A high-rise office buildings that will be delivered this year in the central San Diego market. We have submitted plans to the city for our Scripps Ranch Business Park, a two-to-three-story class-A corporate headquarters and R&D campus located in the mid-city San Diego region. We are designing from 700,000 square feet to 1 million square feet of large floor-plate space, which is lacking in the market, and at rents well below the high-rise competition in the market. We have 31 acres fully entitled with a 2.0 FAR that allows for a lot of flexibility.

GlobeSt.com: With so many companies looking for the “wow” factor in their space in order to attract and retain talent, how does cost come into play?
Irwin: Larger tenants in the market are looking for onsite amenities that help them to attract and retain employees in a highly competitive hiring market. It was recently reported that the aerospace industry, among others, in San Diego, is seeing dramatic growth resulting in a scramble to secure qualified employees. As potential new hires wade through the options of where they want to work, they are selecting locations that fit their active San Diego lifestyle.

We were very fortunate to acquire a 31-acre mid-city campus-development project with 24 additional acres of outdoor amenity space set within a eucalyptus forest. We are designing an onsite mountain-biking course that weaves through the project, a fitness trail with parcourse stations, a sports field for a mid-day soccer game, volleyball and basketball courts and break-area decks that look out over an onsite pond and forested area. On our development lots, we will install first-class amenities including a central fitness building, dining corridor, large outdoor amphitheaters for corporate gatherings, a community garden and other tenant-specific requests. The location is capped off by its proximity to Lake Miramar across the street, which offers kayaking, boating, fishing, outdoor meeting areas and a 5-mile jogging/biking loop.

Given the size of our campus, we are able to spread the costs over a large area, resulting in very competitive rents. We have seen numerous tenants in the market forgo older product that lacks onsite amenities and pay more for options that ultimately provide an exponential return through increased productivity and employee attraction and retention.

GlobeSt.com: Is it more common to redevelop or do adaptive re-use in San Diego? Why?

Irwin: With full-site development and redevelopment very rare through the downturn, many developers turned to adaptive re-use of existing product. With demand for quality industrial product vastly outpacing supply, we are actively seeking buildings that can be retrofitted to a functional configuration. While development opportunities are very hard to come by these days with vacancy getting close to all-time lows, we anticipate breaking ground on a new speculative development very soon.

GlobeSt.com: What else should our readers know about redevelopment in San Diego?

Irwin: With the scarcity of land and rapidly rising construction costs, new development in San Diego will be limited. Redevelopment of existing sites will face hurdles that include re-entitlement, environmental and regulatory burdens. The new storm water detention rules coming into effect will add costs to all types of development projects. These new rules dictate that a site has to trap and initially retain all rainwater that falls on the site. This requires the creation of detention basins on dedicated surface area or underground storage tanks. Both create challenges for laying out a site plan and drive up the overall cost to deliver a building.

We have a benefit in our development projects due to the scale of the sites and our ability to optimize the layouts of detention basins prior to construction. We are also positioned well with fully entitled sites that have already completed the lengthy entitlement process. With infrastructure, streets, utilities and grading complete at two of our three projects, we can deliver shell buildings in as little as six months. While the downturn in the market put a freeze on new development, Murphy Development was actively maintaining our entitlements and various permits with the anticipation that the market would be where it is today.

 

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