San Diego was a very good place to be for industrial real estate during the first half of the year, according to a new Kidder Mathews report.
The region was particularly strong for landlords who own life science and R&D/biotech space.
“Rental rates soared to an all-time high, and vacancy and availability rates remain at historically low levels, only further increasing the competition for space,” the report stated. “Fortunately, the boom in the development pipeline has helped to alleviate some of this pressure as the market experienced a post-recession record high in new construction this quarter.”
Kidder Mathews found that the industrial market is proving to be one of the strongest property sectors in San Diego as a result of healthy fundamentals.
“Occupiers are expanding and modernizing their distribution channels to meet the rising demand of the strong economy and the rapid rise of e-commerce sales,” the commercial real estate firm stated.
Kidder Mathews noted that with an unemployment rate of just 2.9 percent, and 32,500 jobs added within the past 12 months, the market will continue to be driven in a positive direction.
The total vacancy rate countywide slightly increased at the end of the second quarter to 4.6 percent — 20 basis points above the record low 4.4 percent of last year. But the vacancy rate is still very much a landlord’s market overall.
Submarkets in San Diego with the highest total vacancy rates include UTC at 9.8 percent, and Rancho Bernardo at 8.9 percent.
Primary submarkets with the least amount of vacant space, with at least 5 million square feet in inventory, include Poway at 2.8 percent and Escondido at 2.4 percent.
“The industrial market stays tight for now but may experience some much needed relief by year’s end, with nearly 2.9 million square feet under construction slated to complete this year,” Kidder Mathews stated. “North County is seeing much of the new development and construction, as over half the volume of projects under construction are located in this region.”
Asking rental rates for all industrial properties climbed to a record high of $1.04 per square foot on a triple-net basis, reflecting the competitive nature of the San Diego industrial market.
Asking rental rates for R&D properties across the San Diego market averaged a high of $1.49 per square foot, while manufacturing and warehouse space broke past records, posting at 92 cents per square foot in the second quarter.
Notable lease transactions during the second quarter included General Atomics Aeronautical Systems, Inc., which leased 71,429 square feet at 14177 Kirkham Way in Poway; Tesla Motors, which leased 55,573 square feet at 3248 Lionshead Avenue in Carlsbad; and Acco Engineered Systems, which leased 46,353 square feet at 5950 Nancy Ridge Drive in Sorrento Valley.
San Diego’s industrial sales market remained tight at the end of the second quarter, with only 45 transactions consisting of approximately 1.2 million square feet, a slight decrease from the 1.5 million square feet a year ago.
The average price per-square-foot dipped to $142, from the first quarter’s average per-square-foot price of $206, and the $160 per-square-foot figure a year earlier. It is anticipated that the sales activity will pick up in the coming quarters, and prices will trend upwards throughout the rest of the year, according to the report.
Notable sales during the second quarter included Bollert Lebeau Commercial Real Estate’s acquisition of 180,961 square feet at 10770 Wateridge Circle in Sorrento Mesa for $28.8 million or $159.01 per square foot; Penwood Real Estate Investment Management’s acquisition of 170,822 square feet at 260 S. Pacific St. in San Marcos for $21.6 million or $126.45 per square foot; and Rexford Industrial’s acquisition of 143,274 square feet at 4039 Calle Platino in Oceanside for $20 million or $139.59 per square foot.
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