San Diego Office Market Faces Uncertain Future

Donald Bren has officially exited downtown San Diego, stage left, and he has left other companies reeling.

The 93-year-old investor and Irvine Company owner sold off the last of the firm’s six office buildings in San Diego after a yearlong exodus from the Southern California city, leaving other office investors asking themselves what to do next, the Wall Street Journal reported.

At one point, Irvine Company was the largest office landlord in the area, but the move confirms that the Newport Beach-based firm has lost confidence for its growth prospects in the border city. Other downtown property investors will likely be spooked by the selloff, which could trigger a domino effect, some insiders told the Journal.

“It’s a really heartbreaking signal to other owners in the central business district,” Norman Miller, a real estate professor emeritus at the University of San Diego, told WSJ. Despite the national office market showing some signs of a comeback, much of the activity is centralized in major cities like New York and San Francisco.

“I wouldn’t say the San Diegos of the world fit that bill,” Dylan Burzinski, a research analyst at real estate advisory firm Green Street, said.

A spokesperson for Irvine Company said that the firm is still investing in San Diego, but is shifting its focus to other higher-growth markets in the city, such as La Jolla and University Town Center, as it leaves downtown. “Investment activity is shifting toward stronger submarkets,” commercial real estate firm Kidder Mathews said in its third-quarter report cited by WSJ.

Irvine Company began snapping up well-known office towers in San Diego in 2003 and eventually became the city’s biggest office landlord. At the time, San Diego’s economy was in the midst of growing beyond the defense industry as demand for high-quality office space increased. But with the onset of the pandemic and widespread adoption of work-from-home policies — and subsequent slow returns to office — the local market began to suffer.

The firm started selling off parts of its six-building downtown San Diego portfolio last year. In October, it completed its exit with the sale of One America Plaza, the city’s tallest building, for $120 million — more than 50 percent below Irvine Company’s $300 million purchase price for the 650,000-square-foot property.

— Chris Malone Méndez