Sorrento Mesa has become San Diego’s technology, life science and pharmaceutical hub, thanks to its close proximity to UCSD and Scripps institute and the presence of Qualcomm. Parallel Capital Partners has renewed a 200,000-square-foot lease with American Specialty Health Inc. at The Elements in a deal valued at $110 million. Parallel recently invested $3.5 million into the property, and has a deep understanding of the evolution in the market. We sat down with Matt Root, CEO of Parallel Capital Partners, for an exclusive interview to talk about how Sorrento became a major tech hub.
GlobeSt.com: Tell me about the evolution of the Sorrento Mesa market.
Matt Root: The development of Sorrento Mesa, which is located west of Mira Mesa and east of Interstate 5, began in the 1980s with a series of industrial parks. Over time, the sub market evolved into a research and development market. The area now has a diversified tenant base, with life science, healthcare and technology companies migrating to Sorrento Mesa due to its proximity to Scripps Institute, UCSD, Salk Institute and the Burnham Institute. Also crucial to the area’s appeal has been the organic growth of Qualcomm in Sorrento Mesa.
GlobeSt.com: What types of spaces are tenants looking for, and how has the stock of industrial changed as a result of the change in use?
Root: Sorrento Mesa Industrial space has remained largely straight industrial—whether it is small bay incubator or some of the more limited quantities of large bay warehouse. In the flex or research-and-development market, however, buildings are being adapted by owners to satisfy the increasing demand for either life science or technology-based companies who are looking for more open architectural space designs. These tenants include gaming, software engineering, architects, web design and more.
Tenants are demanding space that is designed with more open configurations (i.e. less sheetrock, fewer private offices and more glass) with meeting areas both inside and outside the building – allowing for workforce collaboration and a more stress-free environment which tends to bring out the best in people. Commercial grade kitchens with large open lunchrooms and exterior patio space are becoming the norm in single story facilities – creating a more comfortable and residential type space. By enhancing the workplace comfort level, employers are looking to bolster employee productivity.
GlobeSt.com: What are some of the challenges in this market?
Root: One challenge, as well as an asset, in Sorrento Mesa has been global chip giant Qualcomm, which currently occupies more than 4.2 million square feet in 33 office and industrial buildings across San Diego County, the bulk of it in the Sorrento Mesa area. Qualcomm recently announced it would lay off more than 1,500 workers, and has had similar layoffs in the past, which could result in an excess of office space.
Yet recent CoStar date shows Sorrento Mesa’s office vacancy at 13.6% and its availability rate at 15.2%, both well above countywide rates of 9.9% for vacancy and 12.8 percent for availability
On another positive note, intellectual capital—particularly the highly skilled engineers that Qualcomm has laid off—is quickly being hired by other technology companies seeking a presence in Sorrento Mesa.
GlobeSt.com: Why has this market been appealing to the company?
Root: Sorrento Mesa is the technology and medical hub of San Diego – where some of the country’s sharpest minds create cutting edge technologies. Historically, the clustering of large medical and technology firms has provided Sorrento Mesa with long-term strength and stability. Our focus is to source the highest caliber tenants in the fields of healthcare, telecommunications, software, wireless applications and biotechnology research.
GlobeSt.com: What is your outlook for the medical office/technology market in Sorrento Mesa this year?
Root: We believe the market will continue to thrive as Sorrento Mesa is a medical and tech driven submarket led by a concentration of high profile tenants that include Qualcomm, Sony, Motorola Mobility, Samsung, Google and Verizon.