Residential, Mixed-Use Construction Fueling Growth in the County

The housing market will remain robust as long as supply lags demand and interest rates do not rise too quickly. A sharp increase in the median price of single-family homes is driving growth in the infill multifamily market. Many of the new urban projects include a retail and office mix.

By Greg Aragon

From Chula Vista to Oceanside, development in San Diego County is spreading like a hot summer breeze.

Leading the way are markets such as residential, mixed-use and small-scale industrial and office space.

"We see the residential market continuing to be one of the strongest markets in San Diego County," said Don Adair, vice president and division manager for San Francisco-based Swinerton Builders. "Low interest rates and a continued demand for housing by a growing population in San Diego County continues to drive the market."

Sudberry Properties is planning Quarry Falls, a 230-acre mixed-use development in Mission Valley. The Carrier Johnson-designed project will include housing, shopping and park-like amenities on a former rock quarry site (rendering courtesy of Carrier Johnson).

In 2004, the 4,314-sq.-mi. county of about 2.9 million people had a median price for an attached home of $422,705 and $709,840 for a detached home, both prices represent about a 20-percent increase from 2003. Through November of 2004, the county issued 14,440 residential building permits for the year, slightly lower than the 18,031 permits that were issued in of 2003.

But from a sales standpoint, the county's number of 15,558 new homes sold in 2004, was just a few units off of its all-time high set in 1998, when 15,647 new homes sold.

"We saw a huge roar upwards in terms of new home sales in the attached sector," said Russ Valone, CEO with San Diego-based Market Point Realty, a company that tracks home sales throughout the county. "The housing market in the last couple of years has run pretty balanced, but we are still trying to make up for the huge shortfall that we experienced in the late 1990s. We need to do about 20,000 homes a year to keep up with demand."

The San Diego Association of Governments expects consumer demand to reach 107,000 housing units between 2005-10. "Developers and construction companies cannot work fast enough to meet this demand," Adair said.

Swinerton currently has 16 projects underway and five in the planning stages throughout the county. In all, the 21 projects total about 2 million sq. ft. and are worth more than $315 million.

Swinerton's project's include the $40 million M2I condominiums in downtown San Diego's East Village and the planned $100 million Españada project in Chula Vista.
Developed by San Diego-based CityMark Development, M2I broke ground in September 2003 and will be complete this summer. The project includes two seven-story, cast-in-place condominium buildings over two levels of parking at the corner of 10th and Market. It will feature 230 lofts with one- and two-story floor plans, ranging from 542 to 1,889 sq. ft.

Swinerton, the general contractor, is working with San Diego-based architect Martinez + Cutri and concrete subcontractor Morley Concrete of Santa Monica.

The Españada project calls for two 14-story towers with 100 condominiums each, as well as a rooftop pool and underground parking. The project features 16 three-story town homes, 13,000 sq. ft. of retail space and 8,600 sq. ft. designated for a restaurant.

The project is spread over 4.2 acres on the northeast corner of H Street and Fourth Avenue. Construction is expected to begin in mid-spring.

Españada, was designed by Arizona-based Cornoyer-Hedrick Architects and is being developed by Chula Vista-based Mountain West Real Estate.

Naturally, all the residential activity is fueling growth in other areas.

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"Whenever you have housing growth, you have the need for more retailers, restaurants and services," said Colton Sudberry, vice president of development for San Diego-based Sudberry Properties. "So for the retail market to continue to be strong, I think you need to have continued housing growth."

Sudberry, whose company has 360,000 sq. ft. of development scheduled to begin in San Diego County in the next 12 months, along with another 1 million sq. ft. in the entitlement stage, said that he thinks the residential market is going to pull back a little in 2005 as interest rates rise.

"I don't think anybody, including myself, is predicting a bottoming out or a bubble bursting," he added. "I think were going to see things flatten out and be steady."

Sudberry is currently planning a 230-acre mixed-use development in Mission Valley called Quarry Falls. The project, designed by San Diego-based Carrier Johnson, will include housing and shopping and park-like amenities on former rock quarry land.

Still, Sudberry said that even though business is good, he is seeing a growing lack of available entitled land in all sectors, particularly retail.

"Large retail shopping center property in the county is hard to come by," he added. "There are very few of them that are well located and there is a bunch of competition on every good retail site," he said. "You've got competitors chasing very few deals in the county."

For Swinerton's Adair, a hot market can mean a lack of available workers.

"With construction activity at such a high level in San Diego County, it can be difficult to find enough manpower and skilled labor for each project," he said. "Swinerton's approach to handling the lack of manpower is to prequalify our subcontractors early on, ensuring that we have the right subs who are available on our project."

Meanwhile, Carrier Johnson, with 10 current projects in the county--totaling $363.5 million and covering 2.8 million sq. ft.-recently broke ground on the $12 million construction of the new National City Library in Kimball Park, a 30-acre green belt in the heart of the city.

The 49,000-sq.-ft. institution, which is scheduled to open in July, will be clad in glass and will feature an elliptical-shaped main reading room. The general contractor is Albuquerque, N.M.-based Jaynes Corp.

At the north end of the county, Oceanside is seeing a wave of industrial/office construction.

The city of San Diego has completed construction of the 35-million gallon Earl Thomas Reservoir. The city claims it is the world's largest pre-stressed concrete drinking water reservoir. CH2MHill, Richard Brady & Associates, C.E. Wylie, DYK Inc. and Malcolm Pirnie were among the major consultants and contractors that worked on the $26 million project. Contractors placed more than 20,600 cu. yds. of concrete, scheduled 2,280 concrete truck deliveries, used 58 reels of pre-stressing strand, 594 1-3/8-in. diameter thread bars and 1,486 gallons of epoxy (photo courtesy of city of San Diego).

"[This] market is blossoming because Oceanside happens to have land, when much of Southern California has been absorbed," said Jane McVey, the city's economic development and redevelopment director.

She said that the city of 173,000 people currently has 2.2 million sq. ft. of new industrial/office development in the planning stage and 738,741 sq. ft. under construction.

Two current projects include the 58,614-sq.-ft. Benet Industrial Center at Benet Road and California Highway 76, which will house new offices and industry for California Creative Foods and Precision Lithographs, and the 31,000-sq.-ft. Nitto Denko Research & Development facility at Via del Monte and Jones Road.

In the health care sector, Portland, Ore.-based Zimmer Gunsul Frasca Partnership and Newport Beach-based McCarthy Building Cos. last month completed construction of the $104 million, 270,000-sq.-ft. Rebecca and John Moores UCSD Cancer Center on the University of California, San Diego campus in La Jolla.

The company is now working on the $24 million Biomedical Library addition on the UCSD campus.

"For my company, the hottest market is health care," said Ron Hall, McCarthy's Vice President of operations in San Diego.

Hall said his company did about 13 percent of its work in San Diego County last year and likes building hospitals because they also need parking.

He said UCSD has about five or six contracts to award this year, one of the biggest being the $13.2 million, 1,419-space Hopkins Parking Structure.