San Diego Industrial Absorption Crosses into the Black
For the first time this year, industrial absorption was positive in San Diego, let by leasing activity from ecommerce and medical device users.
San Diego industrial leasing activity ticked up in the third quarter, and for the first time this year, absorption numbers crossed into the positive, according to research from JLL. Data from the firm shows that absorption totaled 299,913 square feet for the third quarter. Ecommerce and medical device companies were among the users to drive leasing activity.
“E commerce, 3PLs, Food & Beverage, and Life Sciences were the industries primarily responsible for this positive movement. Some of this activity was COVID related with a sudden need for diagnostics/test kits, food and beverage deliveries, and home improvement products. These new sources of demand combined with more traditional warehouse uses resulted in a perfect storm for Industrial in San Diego,” Greg Lewis, EVP at JLL, tells GlobeSt.com. “The surge in absorption was led by strong leasing activity along the I-15 corridor and North County where larger and newer warehouse projects with superior functionality are readily available.”
Like other markets, San Diego is seeing a surge in ecommerce demand that is helping to drive leasing activity. “Demand for industrial is exceeding historical averages thanks to a major shift in ecommerce spending,” says Lewis. “The percentage of online retail sales was already trending upward and has been accelerated during COVID-19. In Q2 alone these numbers shot up on a national level by more than 400 basis points from 11.8% to 16.1%. A dramatic increase in stay-at-home consumption has added more fuel to an already burning need for additional warehouse space. Ecommerce requires approximately three times the amount of logistics space compared to traditional brick-and-mortar retail.”
More specifically, last-mile delivery activity is rising, and San Diego checks a lot of the boxes for these users. “Last mile users that began to recognize San Diego as the fifth most populous county in the country prior to COVID-19 now seem to be even more focused on securing sites to serve this burgeoning customer base,” says Lewis. “This trend is expected to continue as San Diego continues to attract residents and major employers from Orange County, Northern California and beyond. The increased emphasis on urban logistics and heightened demand for infrastructure to support last mile delivery operations is here to stay in San Diego.”
Looking into 2021, Lewis expects this trend to continue with strong industrial activity. “San Diego has always benefited from a diverse economy and as historical market drivers such as tourism and hospitality begin to bounce back expect an even stronger spike in demand during the next 12 months,” says Lewis.