Warehouse Market Strong for San Diego

SAN DIEGO—Modern, functional industrial space under 50,000 square feet is at a premium in San Diego, and advanced manufacturers seeking larger space are increasing their demand, according to CBRE Research. Each industrial subtype posted positive net absorption in the first quarter as a result of increased occupancy, and every region in San Diego is now at or below 7% total vacancy.

“Industrial users looking for larger blocks of manufacturing space in San Diego can find these opportunities in North County and more specifically Oceanside,” Greg Lewis, VP of CBRE, tells GlobeSt.com. “Projects such as Prescott Industrial Park (1875 and 1890 Ord Way) and 4010 Ocean Ranch Blvd. offer an attractive price break when compared to central submarkets and up to 230,000 square feet and 203,000 square feet, respectively. However, based on recent and pending transactions and a noticeable uptick in activity from users in the market, we expect the majority of this space to be absorbed in the near future.”

First quarter marked the 11^th consecutive quarter of positive net absorption and decreasing vacancy, posting more than 1 million square feet with a 5.5% vacancy rate. Warehouse accounted for 51.1% of the positive net absorption with 585,074 square feet.

According to Bill Dolan, first VP of CBRE, “The warehouse market is exceptionally strong right now, particularly for modern, functional space under 50,000 square feet. For the first time since the Great Recession, it is common to have multiple tenants competing for the same space. There is also increasing demand form advanced manufacturing users for larger space, over 100,000 square feet.”

As the market continues to tighten, rates are being forced higher, says CBRE. The overall industrial asking lease rate has been notable over the past three years, increasing more than 25% since Q2 2012.

In addition, San Diego construction activity doubled quarter-over-quarter, due to two projects totaling more than 600,000 square feet: FedEx broke ground on a 312,000-square-foot warehouse in Oceanside, and BioMed broke ground on its 307,660-squarae-foot i3 lab campus in UTC.

“In addition to increased build-to-suit activity from major occupiers like FedEx, we are witnessing the first spec development in North County since 2007,” says Lewis. “Burke has broken ground on 80,000 square feet of manufacturing space in Carlsbad, and more produce is slated for later in the year including First Industrial's 240,000-square-foot distribution project in Oceanside. This construction activity is being fueled by strong market fundamentals including increased demand, nearly 1 million square feet of positive absorption in 2014 and an overall vacancy rate in North County that now sits at 5.9%.”