With cars and people pressing in from all sides on a Saturday night, the three-block drive on Market Street between Third and Sixth avenues took nearly 45 minutes. It was the perfect traffic storm, a combination of the usual Gaslamp Quarter revelry blended with those leaving a sellout Padres game, attendees of a mega convention and unusually warm weather. Rather than feeling road rage, I marveled at the progress of Downtown, a place where I have worked for two decades and lived until recently. Even in these slower economic times no one — no one — is asking whether redevelopment is real. Regardless of what stormy seas lie ahead, and the coming year or two could become more economically problematic, Downtown San Diego is a success story that is here to stay.

Today, the biggest story in 92101 is not that residential sales are down and prices stagnant, or that office vacancy rates are rising faster than lease rates. Rather, it is the diminishing number of cranes.

Once the waterfront Hilton is completed, the Hard Rock Hotel opens this month, Bosa’s latest waterfront tower is topped off and Vantage Point at Eighth Avenue and B Street is put to bed, the crane count may strike zero. Even with some new projects on the horizon, it will remain far from its high point of 17 just five years ago.

Major new development in the Centre City is about to go into hibernation. Not that this is such a bad thing. So much activity has occurred the past 10 years — 10,000 new housing units, nearly a million square feet of new office development in the last three years, 2,000 new hotel rooms and countless retail boutiques and new restaurants — that a slowdown was inevitable.

With more than 14 million square feet of office space available Downtown, the vacancy has been creeping into double digits, now standing in excess of 12 percent. The 5.8 million square feet of Class A office space — the newest and best located space — is 18 percent vacant, double what it was three years ago. The change is mostly the result of new inventory, particularly two new office towers. Lease rates are rising modestly.

Before Prices Escalate

The housing market will not turn around soon. Once the current set of 2,000 units is completed by 2009, few developers or lenders will deliver more housing over the next five years. Any pricing declines — or, more likely, pricing stagnation — over the next year, will inevitably precede a sharp increase in pricing, a function of limited new supply coupled with strong demand.

What cannot be overlooked is that the current state of the Downtown residential market is not so bad. Earlier this year I suggested that housing prices and sales would come down.

Sales rates have dropped for sure. But prospective buyers remain plentiful. The difference from two years ago is they are very discerning and carefully shop the current offerings at Alta, The Mark, Icon, Legends, Aria, Breeza, Bayside, Electra and the rest of the 26 projects representing over 1,800 units currently for sale. Coupled with more than 600 resale listings, shoppers have their choice of about 2,400 units currently on the market. This is a two-year supply if the average of 1,300 sales per year from 2002-2006 is the comparative measure. However, Downtown residential sales for the year tallied only 600 at the end of August, counting both new and resales.

The real question is whether these projects will take two years to sell out or if pricing concessions will come into play to burn off this inventory faster. It is questionable that builders and their lenders can exercise sufficient patience.

For now, new condo pricing is holding steady at more than $700 per square foot, while resale prices have slipped to below $600 per square foot. Nevertheless, in the next 36 months or so, real estate agents will delight as the $1,500 per square foot price point is regularly pierced. It will start first on the top floors of existing buildings. I know this because I have visited Vancouver, San Francisco and New York.

All have long passed that luxury-pricing marker, and we can now successfully argue that San Diego is fast becoming an international magnet city with sufficient comparable attractions.

National Media Attention

In the meantime, national media are producing a rash of articles that feature Downtown San Diego. Many of the reporters checking in are working story lines that focus on the crashing condo market. The interest is exceptional.

More newsworthy are the unprecedented projects like the Hard Rock Hotel soon to open at the foot of the Gaslamp Quarter. At this location, and with a high level of pre-sales as hotel condos, this is a sure bet.

A similar wow is the Ivy Hotel. When the Kelly family decided to take their Gaslamp success at the Bitter End and extend it one block to adapt and revitalize the old Maryland SRO into the region’s glitziest boutique hotel, they took development risk to a new level.

If the lines outside of well-coiffed black-attired prospective party goers lining up along F Street is any indication, the risk is paying off.

What I like best with the Ivy is it starkly demonstrates how Gaslamp is now blending into East Village.

The Village is Downtown redevelopment’s future. This is mostly because, at more than 325 acres, it is the biggest neighborhood. But the development will play out very differently from what we’ve seen before. East Village has little relationship to the water, so few units can command premium view rates. With the exception of the projects immediately surrounding Petco Park — and the ballpark is a big exception because it has become a premium unto itself — much of the rest is likely to become a real neighborhood. It will cater to the people who live and work there or nearby. The tourist is not likely to wander much further east or north than they already do.

CCDC’s New Role

To get ready for the working-class East Village neighborhood, CCDC is planning a very large park and other critical infrastructure. In about five years, East Village will see the pace of redevelopment increase. It will take the form of more moderately priced units for those priced out of the high-rises to the west. The big story is in the big numbers: of the more than 12,000 units in the CCDC planning pipeline, the bulk are in East Village. While most exist only in the imagination of developers and architects, eventually they will be built.

Fast forwarding a few years reveals other significant changes. Westfield one day will begin a major rehab of Horton Plaza that will add a new hotel and much higher end boutique stores. Doug Manchester will recharge the north Embarcadero with what I now trust will be a very cool mixed-use project that opens up that waterfront. A new Civic Center might begin the process of revitalizing C Street’s “black hole” while Seaport Village II will expand waterfront shopping and fun. The Irvine Co. will have another crane in the air at Broadway and Pacific Highway and Nat Bosa will start another residential tower somewhere.

I can’t wait to be stuck in that traffic jam.

Gary H. London is president of The London Group Realty Advisors Inc., providing real estate consulting and economic analysis. Check him out on the Web at www.londongroup.com or e-mail him at glondon@sandiegometro.com.