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San Diego Industrial Market Report

1st Quarter 2022

Posted In — Market Research | Market Report

MARKET DRIVERS

THE SURGE in demand over the last year in the San Diego Industrial market has, in turn, caused vacancies and availabilities to fall to all-time lows in Q1, both dropping over 40% year-over-year to 2.9% and 4.0% respectively.

LEASING ACTIVITY cooled off slightly in Q1, but the slowdown in leasing is attributed to the extreme shortage of availability across the county, not the lack of interest and demand. Because of the tight market, landlords have been able to increase rental rates in their favor and average asking rental rate soared to an all-time high of $1.33/SF on a triple-net basis in the first quarter.

OTAY MESA stands as one of the strongest performing submarkets in the county over the past 12 months with rent growth above 10%, while still attracting tenants with some of the lowest rents in the region. The region also accounts for nearly all the spec development in the county and what has been delivered has been almost all-preleased.

SALES PRICES reached all-time high of $437/SF in Q1, as available inventory is still roughly 25% below what it was in 2020, furthering the upward pressure on sales prices.

ECONOMIC OVERVIEW

The San Diego County unemployment rate in February dropped to a new post pandemic low of 4.0%, down seven basis points from 4.7% month-over-month, while adding 16,500 jobs within the last month. This compares with an unadjusted unemployment rate of 4.8% for California and 4.1% for the nation during the same period.

The County’s month-over job gains were led by the professional and business services with 6,100 jobs added, which includes the fast-growing life sciences sector. Increased leasing activity among biotech firms have been driving demand in the market and hiring will continue to rise as these tenants expand further.

NEAR-TERM OUTLOOK

San Diego’s reputation as a top life science and biotech market has grown rapidly over recent years and the race for high-end lab space in the region has buyers targeting outdated industrial facilities and office buildings to convert to life science campuses.

The industrial market may experience some further tightening of fundamentals in the coming quarters as demand continues to rise, rent growth remains above the long-term average, and supply remains low. However, there is almost 3M SF planned in the development pipeline so that could bring a little relief to the tight market.

 
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