[IMGCAP(1)]

SAN DIEGO—More than half of industrial projects under construction in San Diego County are being developed on a spec basis, according to Colliers International's Q2 industrial report. What type of space is being built and where is it being developed?

“Spec industrial development in San Diego County is being defined by the supply of available, developable land, which has made places like Otay Mesa, Carlsbad, Poway, Escondido and Oceanside hotbeds for spec development,” Ty Moffatt, SVP for Colliers, tells GlobeSt.com. “There is virtually no available land in Central San Diego, so we will not see these types of projects in places like Kearny Mesa and Miramar.”

[IMGCAP(2)]

Tucker Hohenstein, also an SVP for Colliers, tells GlobeSt.com there is a pent-up demand for new industrial space, “and preleasing on these spec developments is strong, which is historically unusual for San Diego County. Major spec development projects include Elevate, a 155,000-square-foot project in Carlsbad Oaks North; First Park, a 235,000-square-foot project in Ocean Ranch; an 80,0000-square-foot project in Carlsbad Raceway; and two different projects totaling 250,000 square feet in Escondido.”

According to Colliers' report, at 5.3%, industrial/R&D vacancy is at its lowest rate for the region in nearly 18 years, and there was stronger demand in Q2 for industrial/R&D space here than in the 15-year-record-breaking first quarter of the year. The county's net absorption for this space during the second quarter was more than 1.52 million square feet, while the prior quarter reached 1.32 million square feet. The report also shows that average asking rental rates countywide for industrial/R&D exceeded the historical high of $.99 per square foot per month recorded in Q2 2008 for the first time ever and now stands at $1.01 per square foot per month. New development is surging, as evidenced by more than 1.41 million square feet under construction as of mid-2015, and an additional 111,058 square feet was completed during the first half of the year, which includes an 80,000-square-foot build-to-suit for Olli Salumeria in Oceanside.

Historically low industrial vacancy levels have made spec development more feasible than it has been over the last seven years, according to Colliers, with most of the recent new construction composed of build-to-suit projects. Of the 13 buildings currently under construction across the county, all but three are being developed on a speculative basis. Spec development makes up 51% of the 1.41 million square feet under construction. Over the next couple of years, this trend is expected to continue to shift in that direction.