San Diego Industrial Vacancy Drops

SAN DIEGO—Year-to-date industrial sector absorption has reached 1.2 million feet in San Diego County.

Cassidy Turley has released its third quarter industrial report showing that San Diego County generated 386,000 square feet of positive net absorption across all product types in the third quarter of 2014, bringing year-to-date activity to 1.2 million square feet. More than half of which occurred in the busy North County submarkets.

“This is the 13th consecutive quarter of positive activity during which tenants have absorbed 7.2 million square feet,” said Bryce Aberg, magaging director with Cassidy Turley in San Diego. “The San Diego industrial market has been in growth mode since the beginning of 2013, following a three-year recovery period after 4.2 million square feet was returned to the market in 2009, the worst year of the recession.”

North San Diego County leads the market with 627,000 square feet absorbed year-to-date.
“North San Diego County, particularly submarkets like Carlsbad and Oceanside, have large blocks of available space in existing buildings that are well positioned to meet growing tenant demand,” said Todd Davis, senior vice president with Cassidy Turley. “This has fueled a wave of investment activity, as investors seek to position themselves in areas that have little new inventory on the immediate horizon.”

The Cassidy Turley report shows that the county's best performing submarkets in the third quarter were Poway, Mission Valley and Scripps Ranch, with 267,000 squre feet of combined positive net absorption.

The largest move-ins occurred in Mission Valley, where CEVA Freight LLC moved into 123,400 square feet at 7411 Goen Place; in Miramar, where Dynamex Operations West LLC moved into 59,000 square feet at 7130 Miramar Road; and in Vista, where Du Family Partnership bought and occupied a 54,200 square foot building at 2230 Oak Ridge Way.

Miramar, San Marcos and East County submarkets led the county in space returned to the market for the three months ending September 30, 2014, with combined negative net absorption of 194,000 square feet. The largest move-outs took place in Sorrento Mesa, where Entropic Communications vacated 90,000 square feet at 6290 Sequence Drive; in Sorrento Valley, where Ambit Biosciences vacated 55,000 square feet at 4215 Sorrento Valley Boulevard; and in Carlsbad, where Black Box Inc. vacated 40,000 square feet at 2777 Loker Avenue W.

“Flight to quality and renewals of 40,000 square feet and less will be the main drivers of leasing activity, accounting for 56% of total square feet in lease obligations set to expire in 2015,” said Aberg. “Leases above 40,000 square feet will account for the remaining 44% of expirations in 2015.”

Cassidy Turley reports that total countywide vacancy for all product types, including sublease space, has declined for 13 consecutive quarters to 7.1%, finally below the pre-recession level of 7.2% recorded more than eight years ago in the second quarter of 2006. Current vacancy is 160 basis points (bps) lower than the vacancy rate of 8.7% a year ago, and 560 bps lower than the peak rate of 12.7% recorded five years ago in fourth quarter of 2009.

“The last time countywide vacancy below 7.1% was 13 years ago, in the fourth quarter of 2001,” said Aberg.

Over the past four years, the countywide monthly asking rent for all product types has only increased from $0.78 to $.80 per month, per square foot triple net (NNN). However, the local industrial market is seeing strong increases in the lease rates for modern industrial facilities with low-finish space. These asking rates have jumped by as much as 10% in some cases since last year. Still, industrial rental rate growth remains strongly dependent upon the age and quality of product on the market.

“That being said, with the expectation of continued healthy absorption levels and falling vacancy, we anticipate that rental rate growth will expand throughout the region's industrial sector, as will the tightening of concessions, in the months ahead,” said Dennis Visser, managing drector with Cassidy Turley.