The flood of demand in the San Diego industrial market has caused the market to tighten over recent years, however, availability increased slightly to 5.1%. This uptick comes from new planned developments bringing space to the market, as well as Amazon giving back space they leased last year.
The average asking rental rate climbed to a record high in 3Q at $1.40 PSF on a triple-net basis, a reflection of the highly competitive nature of the current market. Otay Mesa is one of the strongest performers in rent growth throughout the county while still maintaining the lowest rents in the region at $0.93 PSF.
Investors remain active throughout the county, attracted to the diverse tenant pool and strong rent growth. Otay Mesa has been favored due to proximity to the border, while North County logistics buildings are also in high demand.
The San Diego County unemployment rate in August was 3.4%, a sharp decrease from the YOY estimate of 6.5% and is on par with pre-pandemic levels. This compares with an unadjusted unemployment rate of 4.1% for California and 3.8% for the nation during the same period.
San Diego’s reputation as a top life science and biotech market has grown over recent years and the heightened demand for logistics space throughout the county for e-commerce and last-mile distribution continues to increase. These two leading sectors will help the industrial market remain strong and flourish.
Because of the extremely tight market and strong competition, landlords have been able to increase rental rates in their favor, as asking rates soar to record highs quarter after quarter. However, astronomical rent growth is not sustainable in the long run so rent growth may stall in near future.
While there has been a surge of demand in industrial investment, the market may cool a bit as e-commerce sales growth slows, coupled with rising interest rates and fears of a possible recession.
Click here to subscribe to Kidder Mathews market research.