Why We're More Focused on San Diego Office Investment than Los Angeles

For those who know our firm’s reputation, it may be a surprise to know that we are spending significantly more time in San Diego County sourcing deals than we are in Los Angeles County. While we have a homegrown knowledge, understanding and appreciation for investing in Los Angeles County, we like the current metrics for rental growth (i.e.: job growth driven) and opportunities available in San Diego. While we firmly believe Los Angeles County will offer terrific opportunities over the next 18 to 24 months, it is not as “ripe” as San Diego. Here are some reasons for this thesis:

(1) San Diego continues to see a drop in unemployment (2Q2011 – SD at 9.6% down from 10.2% in 3/11 versus LA at 11.8%). Further, officer users, especially professional and service firms saw the largest job creation (6,300 jobs), followed by travel and leisure office users.

(2) We are finding more variety of opportunities including portfolios and smaller deals that provide an opportunity to aggregate to a portfolio; and

(3) Office rents are increasing, the weighted average asking lease rate for office space increased during second quarter to $2.11. Class A rates showed significant improvement posting an 10-cent increase from last quarter. Class B and C both posted eight-cent increase to $1.98 and $1.60 respectively. Class A space had the highest average asking lease rate at $2.53, a 15-cent increase from the same time last year. Class B space had the second highest asking rent with $1.98, a two-cent decrease from the same time last year.

The key for successful office investment is understanding job growth.  Our business is not to buy core assets that are already fully leased.  As Wayne Gretsky said about his hockey success: “I went to where the puck was going to go”.  Our business requires an understanding of where job growth is coming so that we can lease office space.  We see it more likely that job growth will continue in San Diego before it gets started in Los Angeles, at least through the end of this year and the beginning of 2012.

Kenzie Gallagher