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Office Towers on the Rise Again in Downtown San Diego


SAN DIEGO — The first new downtown San Diego high-rise office buildings in a decade have been proposed by two developers who are banking on the city center regaining the cachet that it lost in recent years to developments in the suburbs.

Catellus Development Corp. said it will build a $180-million, 27-story office tower on Broadway just west of the Santa Fe Depot train station. San Francisco-based Catellus, which was spun off by Santa Fe-Southern Pacific railroad to manage the company's vast real estate holdings, plans an early 2002 groundbreaking and 2004 opening.

Lankford & Associates of San Diego, which has built more than3 million square feet of offices--mainly in Denver, Sacramento and San Diego-- says it will build a 25-story office building on the 600 block of West Broadway. Construction on the 400,000-square-foot tower will start late next year and the building will open by the end of 2003, spokeswoman Stacey Lankford said.

Neither landlord has signed a tenant yet.

The downtown office market has only recently emerged from the depths of post-Cold War recession that caused massive downsizing of traditional tenants such as law, financial and accounting firms.

Vacancy rates, which were 9% as of Sept. 30, are down from as high as 27.2% in 1992, according to Burnham Real Estate Services.

"There was the overbuilding of the late 1980s and recession of the 1990s, and it's just taken this long for the inventory to be absorbed and enough new demand to develop to warrant additional office construction," said Kelly Cunningham, research director at San Diego Regional Chamber of Commerce

But the downtown market has also suffered from the increasing desirability of offices built in three suburban development nodes: Del Mar Heights, University Towne Centre and the Interstate 15 corridor. In fact, Del Mar and UTC now sign more leases for more square feet of space per year than do downtown buildings, although downtown's total office inventory is still highest.

With San Diego's increasing traffic congestion, suburban office projects located closer to North County bedroom communities and the Sorrento Valley high-tech industrial corridor have grown in appeal, said Joe Smith of Burnham Real Estate Services in San Diego.

"There are competing markets to downtown," Smith said, "'and different people have different needs."

Booming downtown residential developments, which meet many office workers' imperative to avoid marathon commutes, are a major factor in central San Diego offices becoming attractive again, said Nelson Ackerly, an office broker with CB Richard Ellis.

"There are about 4,000 housing units planned or under construction and available over the next two years," Ackerly said. About 220 of those downtown condominiums and apartments will be built by Catellus in twin 39-floor high-rise towers adjacent to the new office building, which will be dubbed One Santa Fe Place.

Catellus is also the lead developer of office space around Union Station in Los Angeles and recently broke ground on its controversial and sprawling 303-acre Mission Bay mixed-use project in San Francisco. Mission Bay will include 6.8 million square feet of office space, about 6,000 residential units and a University of California satellite campus.

In recent years, Lankford has built the $61-million downtown Hall of Justice and a new Nokia research and office facility in San Diego, as well as two office towers in downtown Sacramento.

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