Final Piece of 2.1M Industrial Build Breaks Ground

Murphy Development has broken ground on the final piece of the massive 18-building, 2.1 million-square-foot Siempre Viva Business Park in Otay Mesa. The project has become well-known for its large corporate tenants, like FedEX, Bose and General Dynamics. The final building in the project will ring in at 79,050 square feet, and will have class-A features like landscape setbacks, high clear heights, functional loading docks areas and truck courts. JLL’s Andy Irwin and Joe Anderson are handling leasing efforts at the project.

“We are targeting good corporate tenants to compliment the mix in the market,” Irwin tells GlobeSt.com. “They tend to gravitate toward projects that have already been validated by other corporate occupants. We are in talks with a number of companies that are looking at an adjacent building that delivered in 2016 as well as this building.”

The building is an ideal size for the market, where 70,000 to 80,000-square-foot buildings are in the highest demand. “Once you get over 100,000 square feet in San Diego, demand falls off sharply,” adds Irwin. “The bigger distribution centers tend to go to the Inland Empire. We are more of a destination industrial market or we see some flow of shopping between Mexico and the US. That is another benefit to the Otay market.”

The Otay Mesa market has seen tremendous tenant demand with rents increasing 47% since 2015. So, it is no surprise that the project is nearly fully occupied, with only two buildings available, including the final building currently under construction. While it has already seen interest from potential tenants, Irwin says that speculative buildings in development typically don’t see traction until close to completion. “In our market, tenants aren’t out as far ahead to lease space, so if it takes us 7 months to deliver a building, tenants start looking three-months out,” he explains. “Spec buildings typically get traction mid-way through the process. Demand right now is very strong, and right now we are looking at a number of tenants in the 50,000-sqaure-foot-plus range that are shopping between a very limited supply of buildings that are in the market.”

Otay Mesa is one of the few markets in San Diego County with land to develop new industrial product; however, this cycle has not seen strong development activity, despite the demand. There are two projects under construction currently, but construction activity this cycle has been limited. “We recently published a statistic showing that between 2006 and 2009, there was 2.9 million square feet of industrial product delivered in the Otay Mesa market,” says Irwin. “From 2009 to today, there has been only 230,000 square feet delivered in this market. So, there is a huge disparity between the cycles.”

Part of the reason for the limited construction has been an increase in land prices and construction costs. The rising rents, however, should offset those increase. Irwin explains, “As rents get to a place where it makes sense for development, you’ll see more and more developers come into the market because they can pencil industrial product.”