The San Diego Union Tribune: The 2045 Pacific Highway site, as seen from Kilroy’s 2100 Kettner office building.(Haley Hill Photography, courtesy of Kilroy Realty)
Kilroy is seeking approval of a 9-story, 137-foot tall office building with ground-floor retail at 2045 Pacific Highway.
BY JENNIFER VAN GROVE
JAN. 17, 2023 2:20 PM PT
Currently home to a Mobil gas station and a car wash, the full city block facing San Diego Bay at 2045 Pacific Highway in Little Italy is on track to become the neighborhood’s largest — and likely nicest — office building with a developer seeking approval of a nine-story project that will also include ground-floor shops.
Last month, publicly traded real estate investment trust Kilroy Realty submitted an application for a coastal development permit and neighborhood development permit for a 137-foot tall mixed-use development with 309,000 square feet of office space and 12,000 square feet of retail space on the 1.3-acre lot, public records show.
Kilroy purchased the property, which is west of the trolley tracks and kitty-corner from the developer’s marquee office project at 2100 Kettner, for $42 million in the summer of 2021. The project site is bounded by West Hawthorn Street to the north, West Grape Street to the south, Pacific Highway to the west and California Street to the east.
“The location is phenomenal,” said Joshua Ohl, who is the San Diego director of market analytics for real estate tracker CoStar. The company, he said, is likely forecasting renewed demand for high-end space in the downtown market. “They’re banking (on the fact) that this isn’t coming to market in 2023 ... and (they) want to have the best space possible for those employers that want to get their employees back in the office.”
Based in Los Angeles, Kilroy’s portfolio includes 16.2 million square feet of mostly office and life science space spread across Los Angeles, San Diego, San Francisco, Seattle and Austin. Locally, the firm operates 2.7 million square feet of space, with most of its buildings concentrated in northern parts of the city.
Kilroy’s recently completed 2100 Kettner project, which includes 178,000 square feet of office space on top of ground-floor retail spaces, marked the developer’s foray into downtown San Diego and is currently Little Italy’s largest office building. The six-story building was 14 percent leased at the end of September, according to Kilroy’s latest quarterly earnings report. The company just secured its first office tenant for the project. An unnamed entity leased 28,000 square feet of space at 2100 Kettner at the end of 2022, Ohl said.
The sluggish leasing activity at what Ohl characterized as downtown’s nicest office building is indicative of broader trends in the market, where tenant demand is limited and coming-soon projects are amplifying an oversupply of available space.
With more than 300,000 square feet of planned office space, Kilroy’s 2045 Pacific Highway project is noticeably bigger than the firm’s existing Little Italy building and is seemingly incongruous with current market dynamics.
“I would imagine (Kilroy) thinks there is going to be a market for that type of building a couple of years down the road, and they’re OK if they have two buildings next to each other that are perhaps the jewels of Little Italy.”
The developer, through a spokesperson, declined to comment for this story but said when it purchased the 2045 Pacific Highway property that it was eyeing completion in 2025 or 2026.
The project is currently being reviewed by staff in San Diego’s Development Services Department. It does not require Planning Commission or City Council approval. The property, however, falls within San Diego International Airport’s approach overlay zone, meaning the developer’s desire to build above 85 feet requires sign-off from the Federal Aviation Administration.
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