Better Yields Draw Industrial Institutions to San Diego

Institutional industrial investors are setting their sights on San Diego for better yields. While Los Angeles, Orange County and the Inland Empire have been hotbeds of industrial activity in Southern California, pricing in the markets has increased to record highs. Now, activity is moving to San Diego, where demand is heating up and absorption and rental rate growth are just beginning to reach record levels.

“When institutional investors think industrial in Southern California, their first thought is typically Los Angeles, Orange County or the Inland Empire,” Bob O’Neill, SVP of acquisitions at CapRock Partners, tells GlobeSt.com. “As these areas become extremely supply constrained, many in the institutional space are turning to San Diego investments for slightly higher yields than the aforementioned infill markets. With its strong biotech, electronics, defense, healthcare, tourism, manufacturing and telecom sectors and the eighth largest population in the Unites States, San Diego is a prime location for industrial development. Institutional investor interest in San Diego has accelerated significantly in the past year or so, especially in the central and northern areas of the county, as absorption, rental rate growth and industrial activity reach record levels.”

CapRock Partners has acquired 26 acres in the Sorrento Mesa submarket to fulfill the industrial demand. The site—which is still under entitlements—will be used for both industrial build to suits as well as speculative development. The firm is working with the city to finalize site plans. “Available land for new industrial development is almost non-existent within the Central San Diego submarket. Most of the new industrial construction is occurring in North County and South County,” says O’Neill. Demand for speculative or build-to-suit industrial projects in the Sorrento Mesa/Miramar areas of San Diego is driven primarily by substantial growth within the e-commerce, healthcare, tech and defense industries. With little to no space currently available, CapRock’s acquisition represents a unique opportunity to provide industrial space solutions for growing companies in these sectors.”

Even this early in the project planning, O’Neill says the firm has already received interest—a sign of the strong demand. “We anticipate that interest will be extremely robust,” he adds. “This site’s prime infill location within San Diego’s land-constrained market will allow prospective industrial tenants to create a custom, modern space for a wide variety of manufacturing, last-mile logistics and other industrial uses.”

The firm has completed two other acquisitions totaling 250,000 square feet in San Diego this year to capitalize on the growing demand. “We’re currently nearing completion on the renovation of a 91,000-square-foot acquisition in Scripps Ranch and an additional 158,000 square feet of industrial space in Vista,” says O’Neill. With the strong fundamentals and healthy yields, CapRock plans to remain active in this market.