Small-box industrial properties dominate owner-user deals in San Diego. According to research from JLL, more than 90% of owner-user deals in the market are for properties under 30,000 square feet. Of those deals, more than 75% were for buildings under 10,000 square feet. The 10,000-square-foot size range is the most popular for owner-users. Chris Baumgart and Steven Field of JLL have just sold a 22,000 square foot building to Sun Harvest LLC for $199 per square foot, illustrating the pricing trends for these properties.

"Owner-user building purchases are primarily dominated by manufacturing, construction, consumer products and e-commerce companies within the North County San Diego market," Baumgart tells GlobeSt.com. "While the investment market saw a significant increase in 1031 exchange requirements in 2019, primarily private capital investors.  Many of the 1031 exchange requirements were from out of the market investors looking for higher returns compared to markets in Los Angeles and Orange County."

The trend may be shifting, however. In 2019, demand for larger buildings started to increase, and Baumgart expects the trend to carry through 2020. "One trend we saw in 2019, that will carry into 2020 is the increased demand from buyers looking for buildings 30,000 square feet and greater," he says. "Many of these buyers we have seen in the market already own but are looking for larger facilities to help accommodate business growth."

This could be a challenge for the owner-user market segment. "The challenge buyers are finding when looking for larger buildings is the lack of options available in the market, which led to several "off-market" transactions in 2019," says Baumgart. "As for the industrial investment market, 2019 represented another banner year for capital markets. With just over $501 million sold in North County, we saw the largest increase in private capital investments, which was up 145% from the previous year. There were several 1031 exchange requirements that helped fuel the demand from private capital investors, however many were local investors who continue to invest heavily in North County San Diego."

The owner-user profile is also changing. In 2019, more private and institutional investors were active in the space. "We have seen an increased demand from private capital and institutional investors who have seen San Diego as an attractive market to investment in," says Baumgart. "But due to the high barriers for entry in a competitive and under supply market, it can be challenging for new investors to enter the market, since everyone is well established in the North County."