Southern California real estate giant Irvine Company further retreated from downtown San Diego with the recent sale of a west Broadway skyscraper, offloading the office property for less than half of what it paid for the building nearly 20 years ago.

Commercial real estate operator XYZ purchased the 421,661-square-foot office building at 501 W. Broadway for $69 million, property records show. Irvine Company paid $150 million for the tower in 2006.

Overall office vacancy downtown is 36%, said real estate tracker CoStar. New downtown office spaces, like The Campus at Horton, have struggled to fill offices.

Still, residential construction downtown remains robust, Comic-Con had another booming year in the Gaslamp and lots of big projects are still being proposed.

Question: Is Irvine Company pulling out of downtown San Diego a bad sign?

Economists

David Ely, San Diego State University

YES: Recent actions by Irvine Company indicate that it has concluded that its resources are better deployed in locations outside of downtown. It continues to invest in other areas such as University City. The high downtown office vacancy rate, the sales price for the property on Broadway the Irvine Company just sold and the struggling Campus at Horton project are all good reasons to have a pessimistic view of downtown commercial real estate.

Ray Major, economist

YES: The downtown San Diego commercial market is in trouble. It is more than 30% overbuilt with bleak prospects for a quick recovery. What we see is part of a correction that could take many years as the market absorbs excess space. As a privately held, well diversified company, the Irvine Company can optimize their portfolio outside of downtown San Diego and into areas they deem more profitable.

Kelly Cunningham, San Diego Institute for Economic Research

NO: Obviously, Irvine Company places greater value on selling the property in pursuit of other commercial interests, while XYZ sees opportunity to make the purchase. Both sides can benefit from transactions in free market situations. Demand for communal office space evolved with advances in technology and communications to conduct meetings online no longer requiring in-person gatherings. Therefore, demand for office space adjusted, while at the same time properties can be repurposed for residential or other uses.

James Hamilton, UC San Diego

YES: The most important factors in the high office vacancy rate are the move to remote work and high interest rates, which are beyond our control. But policy mistakes, including overbuilding downtown life sciences space, inadequate infrastructure for parking and treating the homeless, and excessive taxes and regulatory burdens also played a role. Irvine Company took a huge economic loss to register a vote of no confidence in the future of downtown San Diego commercial office space.

Norm Miller, University of San Diego

YES: Irvine Company’s departure from downtown San Diego signals more than a simple exit; selling property at a steep loss highlights a lack of confidence in the future of the traditional urban office market and the office market in general. Given the new downtown housing supply coming online, unless enough residents work from home, reverse commuter congestion could worsen, underscoring the importance of increased downtown employment to balance off the residential side of the equation.

Alan Gin, University of San Diego

YES: At least for the downtown office market. The era of the downtown being dominated by office employment is likely over, not just for San Diego, but for metropolitan areas worldwide. Office use dominated downtowns when face-to-face proximity was important, but the advent of video meetings during COVID disrupted that model. There will continue to be some office employment, but there will be a major shift to residential and entertainment (including restaurants and nightlife) uses, which may not be a bad thing.

Executives

Bob Rauch, R.A. Rauch & Associates

YES: Irvine Company has sold multiple downtown towers at steep losses as the company is shifting focus to UTC. Downtown San Diego’s office vacancy rate is more than 30%, and closer to 50% if analyzed based on occupancy versus paid leases that remain vacant. The trend reflects national retrenchment from downtown areas, as remote work and suburban preferences reshape office demand. Weak office demand may impact weekday business travel and accelerate mixed-use redevelopment and residential conversions.

Austin Neudecker, Weave Growth

YES: While the city sorely needs additional housing capacity, the downtown office market is currently at 36% vacancy. The 501 W. Broadway discount sale indicates that office space is mispriced in a city where the cost of living continues to rise and hybrid work remains a trend. With high interest rates and tightening credit, the office sector will continue to struggle. I expect to see more notable exits and conversion attempts.

Phil Blair, Manpower

YES: Yes! with an exclamation point. How could it be interpreted any other way? With the bath that Irvine took on the San Diego market how can they ever consider coming back?

Gary London, London Moeder Advisors

NO: Downtown San Diego is one of the most robust central business districts in America. Its waterfront location, huge residential base and multiple attractions assure long-term prosperity. The Irvine Company dealt underperforming assets and exercised their own strategic prerogatives. Now there is an opportunity for new owners to invest fresh money into perfectly fine, but relatively unoccupied office buildings, and reimagine them. That reimagining might include use conversions, lower lease rates or revamped marketing.

Chris Van Gorder, Scripps Health

NO: Business real estate fluctuates and we are now in a down cycle, made worse recently by COVID and remote/hybrid work. Also impacting local real estate are cuts in research/biotech grants by the Trump administration, homelessness and increasing taxes. With Irvine Company’s plans to remake part of its University City office campus into apartments, the UTC area may be the mixed-use business office location of the future, akin to Century City in Los Angeles.

Jamie Moraga, Franklin Revere

YES: Irvine Company understands the real estate market, and with downtown San Diego office vacancy near 36%, they’re shifting to where activity and demand is: Sorrento Mesa, UTC and Torrey Pines. University City combines residential and commercial offerings near academic, research and biotech hubs, plus transit access and the robust Westfield UTC mall. Irvine Company aims to build world-class mixed-use districts, and their refocus shows that downtown San Diego isn’t that market right now.

Not participating this week: 

Caroline Freund, UC San Diego School of Global Policy and Strategy

Have an idea for an Econometer question? Email me at phillip.molnar@sduniontribune.com. Follow me on Threads: @phillip020