Home / Business / Industrial Demand Continues to Dwindle Supply in San Diego

Industrial Demand Continues to Dwindle Supply in San Diego

San Diego County CA— According to CBRE’s research, the San Diego industrial market is off to a strong start in 2016 with many market fundamentals pointing toward continued improvement throughout the year.

Net absorption was positive for the 15th consecutive quarter. This quarter, four buildings in Oceanside totaling 549,276 sq. ft. were delivered fully leased. FedEx completed a 312,000-sq.-ft. warehouse, and First Park @ Ocean Ranch delivered three buildings totaling 237,276 sq. ft. They were delivered fully leased by Suja (171,676 sq. ft.) and Brixton (65,600 sq. ft.). The only industrial building to break ground this quarter was Continental Commerce Center, a 44,084-sq.-ft. warehouse in Otay Mesa. These deliveries bolstered net absorption to 466,270 sq. ft.

“There is uncertainty in the future,” said Ryan Sparks, CBRE’s industrial & logistics expert in San Diego. “The market is moving too fast for tenants to wait on real estate decisions and thus they are approaching landlords much earlier than the norm. The total vacancy rate has nearly been cut in half over past 24 months causing low finish rental rates to reach historical levels.”

According to CBRE Econometric Advisors, San Diego’s construction industry had the highest growth rate of all sectors increasing 6.7 percent in the last 12 months. In addition, manufacturing employment in San Diego grew by 3.2 percent year over year from February 2015 to 2016, according to data from the California Employment Development Department. Manufacturers in the region added 3,300 jobs over that period and far outpaced the national manufacturing growth rate of 0.1percent. The strength of the industrial market is evident in the market fundamentals.

Average asking rates, which have been flat since Q2 2015, increased this quarter by $0.06. This significant increase resulted from swelling demand and scarce supply in San Diego’s industrial market. Industrial sales were in line with previous quarters—North County accounted for more than 45 percent of both the total sales volume and total sales prices this quarter. Lab product increased their average asking rate by $0.52 and R&D decreased $0.03, which was the only subtype that decreased quarter over quarter.

San Diego’s total vacancy increased to 4.4 percent, while direct vacancy decreased to 4.1 percent. This divergence is due to a combination of the large amount of deliveries fully absorbed upon completion and an increase in sublease vacancy. Total vacancy increased because the construction deliveries outpaced net absorption. Central San Diego and North County sublease vacancy increased 0.2 percent and thus increased overall vacancy. Nonetheless, the overall vacancy rate is at the second lowest point historically, behind Q4 2015. The fully-leased deliveries this quarter created nearly 550,000 sq. ft. of positive net absorption, all of which was located in Oceanside. Without these deliveries, net absorption would have been negative due to sublet vacancies coming online.

View the Full Report.

%d bloggers like this: