Few CEOs enjoy the kind of view Jack Abbott had from his office in Del Mar. Housed in a beautiful space right on the lagoon, employees could walk to the beach in a few minutes. “But we couldn’t get enough space there,” recalls Abbott, CEO of Inter@ctivate Inc., a marketing agency specializing in Internet and multi-media design.

After looking at property in the North City, Abbott settled on 9,000 square feet in the Washington Mutual building Downtown. Several factors influenced the decision. Since the San Diego Padres are an Inter@ctivate client, moving closer to the new ballpark seemed a logical choice. Then Abbott discovered that Downtown rental rates were 30 percent lower than space he was considering in Sorrento Valley.

“We also became attracted to the more central location,” adds Abbott. “Clients love the entertainment and vibrancy of Downtown. Friday afternoon is our most popular appointment time. For me, there’s not a better place in San Diego to work.”

Inter@ctivate isn’t the only company to come to that conclusion. While vacancy rates have soared elsewhere, the Downtown market has tightened considerably. Burnham Real Estate Services reports the overall office vacancy rate for Downtown in the second quarter came in at 8.4 percent, as compared to 21.7 percent in Sorrento Mesa, 15.6 percent in UTC and 33.5 percent in Carlsbad. Other brokers note that when the most desirable Downtown space, the Class A square footage, is examined, the vacancy rate is hovering in the 5 percent to 7 percent range.

A variety of forces helped Downtown get to this moment in its commercial life. For starters, nothing of significance has opened since One America, Symphony Towers and Emerald Plaza did a decade ago. Also, decades of bureaucratic indifference allowed property zoned for suburban industrial parks to convert to low-slung, cheap sprawling office complexes surrounded by acres of blacktop parking. The resulting low development costs made Downtown an unattractive investment.

But today, with the tech wreck having brought North City growth to a halt and placed thousands of square feet back onto the market, Downtown’s lack of new product has worked in its favor. As a retail and residential resurgence steams forward, demand for urban office space is peaking.

Tim Cowden, senior vice president of Collier’s International’s Downtown office, says the Centre City’s desirability can mean only one thing. “Right now, we’re at a point of equalization and I expect to see rents start to go up.”

New Towers Now; Or Not

Yet questions remain about Downtown’s near-term commercial future.

Developer Rob Lankford’s 26-floor, 430,000-square-foot Broad-way 656 is preparing to break ground in January. At the same time, Catellus is moving forward with plans for its 26-story, 530,000-square-foot One Santa Fe Place tower. Construction schedules, which called for breaking ground this year, already have slipped.

Some Downtown observers and real estate specialists worry that if premier tenants cannot be convinced to look out three or so years when these projects will open, and to make a corresponding lease commitment, the much-tougher financing market will further delay those developments. If that happens, more tenants interested in Downtown will be turned away — something that already is happening due to shortages of large premier spaces. “We represent clients throughout the county,” says Jason Hughes, a principal in Irving Hughes, a commercial leasing firm that represents the majority of Downtown’s office tenants. “There are tenants that want to poke around down here. But when our clients in Carlsbad have an interest in Downtown and there are only two options to show them and those aren’t that great, the deal doesn’t happen.”

In 1992, Downtown San Diego had 11.8 million square feet of commercial space, 20.4 percent of the county’s 57.9 million square feet. In the last decade, nearly 20 million square feet of space was built in the county, while Downtown’s share and square footage both declined, falling to 14.9 percent and 11.5 million square feet, respectively.

Worried about this trend and the lack of new commercial construction is Gary London, one of San Diego’s leading independent real estate analysts and also a regular contributor to San Diego Metropolitan.

“Downtown is pregnant with the opportunity to attract high-technology firms,” London says. “It is historically a repository for service, legal, financial, accounting and consulting firms. Now is the absolute time for Downtown to position itself to capture companies that are in the technology and bioscience sectors. You can bring those companies into the kind of environment that appeals to their employees. If there is no inventory, the party is over before it starts.”

Also, without new commercial development the law of supply and demand could send rents ever higher, a trend many brokers expect will happen soon if the rumored sale by Shimizu America Corp. of its 34-story, 570,000-square-foot One America Plaza for a San Diego-record $291 a square foot — $165 million — takes place. In addition, delays may cause existing tenants now ready to jump to a new high-rise to get nervous and instead sign a new lease with their existing landlord, or perhaps even relocate out of the area.

All this would come at a time when several Downtown private and public groups are pooling their funds to begin the Centre City’s largest marketing promotion. A pillar of the plan is a Downtown for living, playing and working, not just a place for a lawyer to work or for a wealthy person to own a second home.

The ‘There’ Remains Here

New construction issues aside, just getting to this point required Downtown to overcome its reputation for crime and expensive parking. “For years, people thought of Downtown as scary, but now they see that isn’t so,” points out Cowden. “They’ve also learned that it only costs 50 cents per square foot to park employees. Even added to rates such as $2.40 per square foot, that’s still cheaper than $3.25 or $3.50 per square foot in the Del Mar Heights area.”

Like most of San Diego, Downtown hit tough times in the last quarter of 2001. But the market had one factor in its favor — the varied mix of businesses. Unlike other areas that had a large concentration of technology companies, Downtown only had one dot-com of significance go belly up: Collegeclub.com. The non-tech profile, which worried analysts in the late 1990s, became the area’s saving grace. While other markets are experiencing a flood of sublease space, Downtown had little turnover, and even that was absorbed quickly.

“After a period of uncertainty following 9/11, the Downtown market has come back,” says Ty Considine, senior broker for Considine Commercial Real Estate. “The popularity of Downtown is increasing dramatically. Now, the day I put up a ‘for lease’ sign, I get calls. Downtown is at the point of being one of the major metropolitan centers in the U.S.”

A Present That’s Mixed

With crime and parking not viewed as major concerns, brokers report an increasing number of businesses are asking about Downtown. Much of the office space comes with great views, convenient access to three highways and lower rental rates. Add to that an assortment of entertainment opportunities, increased shopping and the new ballpark, providing Downtown employees unique opportunities that can’t be found in other parts of the county.

“The overriding story of Downtown today is that people are enjoying the work-live-play phenomenon,” adds Cowden. “They like that they don’t have to spend 45 minutes on the freeway to get to work.”

With the thousands of homes under construction Downtown selling luxury as an amenity, boosters cross their fingers that a new generation of company owners will become 92101 residents. “These are the people who can say they want their businesses down here or who want to attract the people who live down here,” says Allan Arendsee, president of AW Arendsee Real Estate.

Who are these people? They range from engineers to lawyers and everything in between. Gen-X employees, which many businesses are interested in attracting, also are drawn to the Downtown energy. “These people like the work-play thing,” says Cowden. “Creative types work all night and still want to walk to Starbucks. If they’re in Rancho Bernardo, the town shuts down at 5 p.m.”

And the price remains right.

“It’s still a good bargain Downtown,” says Ed Muna, who oversees leasing and management for Southwest Value Partners, an owner and manager of commercial property. “Plus, there’s a good variety of spaces available, from small offices to full floor plates. Businesses shouldn’t have any trouble finding space.”

Value is what brought Virtual Capital of California, a small investment group, to Symphony Towers. “We looked at Banker’s Hill in Mission Hills, but it was a different class of space,” explains CFO Jonathon Vance. “If we had needed more space, then we would have gotten a better rate. But we’re very happy with being Downtown because it’s very central to everything.”

As Downtown continues to thrive while other markets are faltering or flattening, businesses are getting more excited about its potential.

“It’s an incredibly exciting place to be as far as commercial real estate is concerned,” says Bradford Perry, vice president with Burnham Real Estate Services. “Downtown has been amazingly resilient and now the future looks mind spinningly exciting. People see the views, the residential development under way, the entertainment and the weather. Where’s the downside to that? That’s why Downtown is where it’s happening.”

— With Tim McClain