San Diego CEO Jason Hughes Explains What Office Tenants Should Consider Right Now

With nearly three decades of experience working in tenant representation, Jason Hughes says office tenants face new challenges amid the COVID-19 pandemic and the overall shift in office needs. While San Diego is abuzz with expanded demand from the life science sector for more lab space, Jason Hughes acknowledges there are several new factors to consider when it comes to being a tenant in 2022.

“It’s a supply and demand [situation],” Jason Hughes says. “It’s an equilibrium issue. As there’s less supply and more demand, prices go up.”

Jason Hughes shares that commercial tenants can improve their chances of securing the right space. Jason Hughes advises it’s vital to leave enough time to renew a lease or move, and timing is everything.

Jason Hughes says there’s tremendous availability of space in most urban core markets

“In Downtown San Diego, landlords are finding it very difficult to lease space for a variety of reasons. We had a lot of overbuilding over the past decade,” Jason Hughes explains. “We had a lot of conversions from non-office to office. And at the same time, a lot of companies have been able to use this hybrid work model and say, ‘You know what? We just don’t need the same amount of space.’”

The San Diego business leader likens it to the “perfect storm.” San Diego’s rising homeless problem has also played a role. A recent CBS 8 news report states that about 1,300 homeless people have flooded Downtown San Diego and that population has nearly doubled since 2021.

Locals have reported tents expanding to San Diego curbs. Jason Hughes says the result is that many companies are now discovering they no longer want to be in Downtown San Diego. And despite new commercial office properties popping up on the market, Jason Hughes says there’s no real velocity of tenant interest.

“If you’re a Downtown San Diego landlord, I would be in panic mode right now, ,” he says.

“That being said, there are some unique dynamics that insulate downtown from the expected drop that you would see in a normal supply, demand equilibrium. There are a couple of very large landlords, with very deep pockets, who have no debt.

“And a tenant that just got a hundred million dollars of equity, like a tech company that just got infused a ton of money, and they’re just like, ‘We don’t care what the rents are, so we’ll pay it.’”

Downtown is the outlier

As inflated market rates have shifted the balance in San Diego, Jason Hughes says the UTC/Golden Triangle area, as well as Carmel Valley, has become the upscale office markets for those who don’t want to be downtown.

“They are much smaller markets than downtown, but it’s where a lot of higher-end-type professional users want to be,” he says. “And those markets have become very complicated because it’s also adjacent to Torrey Pines, which has become the epicenter for the life science biotech industry. It’s adjacent to the University of California San Diego, and that’s where the hub has been for decades for life science and that sector has exploded.”

Growing 4.5 million feet of life science in the last year, Jason Hughes says the landlords in The Golden Triangle, UTC, have started pushing out office tenants and converting their traditional office buildings to life science lab-type buildings.

“You are bringing in a whole different user that will pay much-inflated rates,” he says. “And at the same time, there are some of the big tech companies from Silicon Valley moving into town. Apple has come into town and taken a million and a half square feet, just in the last few years to compete with Qualcomm, for 5G chips.”

With the life science sector snapping up most of the space, Jason Hughes says competing with them is a tough bet. “You have some of these other very successful technology companies like ServiceNow. And now Amazon’s coming into town,” he says. “Then you also have Jeff Bezos and his longevity center for life wellness. There are some incredibly deep-pocketed companies that are coming in and just buying space; they don’t care what it costs.”

While Hughes says many companies are seeing office space as a liability, he advises viewing it as an opportunity to build company culture. As companies are moving workforces back into the office amid the COVID-19 pandemic, Jason Hughes affirms many corporate team members are excited to return to an office setting after working from home for two years.

“[People are saying,] ‘We miss each other, we want to be together,’” he declares. “I’m already seeing more and more articles talking about how working from home isn’t working.”