South County and Central County Leading the Year’s Growth
San Diego CA— After absorbing an astronomical more than 700,000 square feet (sf) from the market on a net basis last quarter, San Diego’s industrial market took a small step backward in reporting a negative 173,800 sf of net absorption in the third quarter of 2019. Despite two of three quarters this year (Q1 and now Q3) returning negative growth figures, the silver lining is due to that blistering second quarter, the year still sits at more than 500,000 sf of occupancy growth.
Bryce Aberg, Executive Managing Director with Cushman & Wakefield in San Diego, said, “While we have distanced ourselves further from the robust 2 million square feet of occupancy growth in 2018, going into the final quarter of 2019 with over a half million square feet of growth is still a very respectable level—and with a fair amount of positive absorption in Q4 we’d still find ourselves comparable to 2017/2016. We’re also highly likely to experience our 10th consecutive year of industrial growth.” He added, “South County currently leads all sub-regions with over 517,000-sf of occupancy growth year-to-date, trailed by Central County with 272,000 sf. In contrast, North County has fallen further into the red with 275,000 sf of loss through the first three quarters of 2019.”
Aberg continued, “In terms of industrial space segments, warehouse/distribution is by far the dominant leader within this sector with 950,000 sf of occupancy growth year to date. R&D/flex is also performing very well with nearly 400,000 sf of growth. However, with a negative 653,000 sf, general manufacturing has taken a bit of a hit so far this year, while Incubator is at a negative 182,500 sf.”
Although softening a bit this quarter, overall industrial vacancy still remains healthy at 5.7%, with direct vacancy at 4.7%. According to the report, the market remains tightest for incubator multi-tenant (IMT) space with a direct vacancy of 4.0%, up 70 basis points from a year ago. Vacancy for manufacturing space stands at 4.4% countywide versus a mere 2.6% a year ago. Distribution space vacancy is 4.8%, up 60 bps from last year. Meanwhile, R&D vacancy continues to dwindle, falling another 140 bps the past year to now just 5.4%.
Jolanta Campion, Cushman & Wakefield’s Research Director in San Diego, said, “Despite an increase in overall vacancy in the third quarter, asking rents continue to rise, with all product types coming in at a combined average of $1.18 per square foot (psf) per month on a triple net basis, up a nickel from $1.13 psf last quarter (+4.4%) and up $0.11 from $1.07 psf a year ago (+10.3%). The average rate for industrial product has risen more than 45% in just the past approximately five years, from $0.81 at the close of 2014.”
Per the report, there is currently 1.5 msf of industrial product under construction countywide, split mainly between Central County (680,300 sf) and South County (656,500 sf), with minimal construction in North County at just 137,800 sf. Central County is highlighted by the 531,000-sf Vantage Point project in Poway, and the 141,000 sf RB Vista in Rancho Bernardo, while in South County there is 364,300 sf underway in Otay Mesa at the Majestic Sunroad Center (227,300 sf) and The Campus (137,000 sf). In North County, virtually all new construction stems from Carlsbad.
Ryan Spradling, Senior Director with Cushman & Wakefield, said, “So far this year, there has been 1.2 msf of new inventory officially delivered, which pales in comparison to the nearly 3 msf of deliveries in all of 2018. During the third quarter, there was more than 198,000 sf in new project deliveries, of which 145,000 sf was also absorbed.”
Spradling added, “While North County’s speculative construction is winding down, significant new construction continues in I-15 Corridor and South County, areas that have seen significant absorption and are currently lacking large blocks of space. These new additions will help satisfy the continued demand in these markets as well as allowing for occupiers Countywide to expand into state of the art Class A warehouse/distribution projects.”