San Diego's East Village boom scores in its first inning.

Cast your eyes toward the northeast from the balcony of a penthouse at Douglas Wilson Cos.' Parkloft--among the first projects completed in San Diego's ballpark district of Downtown's East Village--and peer out upon a sea of construction, excavation and development in progress.

The view from 11 stories above the comer of Island and Eighth avenues, where Parkloft is located, is similar to countless others within the 26-block radius that comprises the district. The neighborhood, as defined by the Centre City Development Corp., the city's downtown redevelopment agency, spans from Sixth Avenue to the west to 15th Street to the east, and from Market Street to the north to Commercial Street to the south.

Since construction of Petco Park in 2000, land prices in the neighborhood have increased roughly 900 percent, from $40 to more than $400 per square foot, according to Tim Winslow, a member of the investment division at Grubb & Ellis/BRE Commercial.

There are now more than 2,700 housing units in the development pipeline in the East Village neighborhood that covers roughly one-quarter of downtown, according to San Diego-based London Group Realty Advisors. In the ballpark district alone, there are 5,246 existing residential units and hotel rooms.

On the commercial side, lease rates on new retail inventory, which range from $3 to $3.75 per square foot per month on a triple-net basis (where the lessee pays all taxes, insurance and maintenance expenses in addition to rent), are approaching those of La Jolla and Del Mar.

The area's first office tower, San Diego-based Cisterra Partners' DiamondView Tower, is set to break ground behind right field of Petco Park on April 18, and will deliver almost 307,000 square feet of office space to the district.

Retail mix

But a survey of the neighborhood reveals a potential dilemma. The rapid pace of residential development has led to concerns over the creation of sufficient retail to meet the needs of incoming residents.

"You have more than 4,000 residential units, bringing in roughly 5,000-plus people within a year or two, but where are all of these people going to get their coffee in the morning? Where will they get their lunch?" asked Danny Fitzgerald, a broker who specializes in downtown retail properties for Grubb & Ellis/BRE Commercial.

The CCDC has required that many developers of residential projects devote the ground floor of their buildings to retail space somewhere along a rate of 80 percent residential units to 20 percent retail square footage.

Gary London of the London Group said this explosion of space creates competing commercial needs. "The question is, when the dust settles, what will the area look like?" he said.

A total of 32 projects have either recently gotten under way or are nearing completion, compared with just seven in progress in 2000. But despite increased supply, prices keep going up, with the median price of a two-bedroom condo in an East Village luxury high-rise running at around $700,000.

"It's funny how rapidly this neighborhood has changed," said developer Douglas Wilson, who purchased two lots totaling 100,000 square feet in 1998. "People thought I was crazy of had this 'vision thing' going but now I'm right at the corner of 'Main and Main.'"

Fitzgerald said major retailers, including Staples, Whole Foods, Vons and Trader Joe's, have been "looking around lately" for space in the East Village. "They're saying, 'I want to be between this street and that street, but the lots are already purchased,'" he said.

Much of the development is already slated for residential projects and, according to Fitzgerald, it makes more economic sense for the developer to lease or sell the ground floor retail to a boutique or small restaurant as opposed to a grocery or drugstore.

On opening day at Petco Park last week, a 235-room boutique hotel was scheduled to open, the newest addition to the district. John Kratzer, the president and chief executive of JMI Realty, the master developer of the ballpark district, said he hopes the new 13,000-square-foot pool deck adjoining the hotel will become the "true downtown urban oasis."

A year ago, the season opener of the ballpark also coincided with the opening of JMI's 32-story Omni San Diego Hotel, with 11 floors of the Metropolitan condominiums atop.

"By the next baseball season, there's going to be a whole new set of buildings, and the neighborhood will look totally different year after year," said Kratzer.

HEATHER BERGMAN

San Diego Business Journal