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Companies Are ‘Making the Move’ in Industrial Market

San Diego County’s industrial real estate market started 2012 by posting a vacancy rate of 10.8 percent — a level not seen since the first quarter of 2009, marking the fourth consecutive quarter of vacancy declines amid the sector’s continuing recovery, the brokerage firm Cassidy Turley BRE Commercial recently reported.

“There are some cases where companies might have stayed put during the downturn in spaces that were too small, and now they’re making the move to bigger spaces,” said Andy Irwin, a vice president in Cassidy Turley’s San Diego office who handles industrial transactions.

Large industrial lease signings of the first quarter included a 78,744-square-foot expansion by Cymer Inc. in Rancho Bernardo; a 58,368-square-foot leasing by Ashley Furniture in Miramar; a 57,587-square-foot leasing by Monterrey Provision Co. Inc. at Otay Mesa; and Meridian Rack & Pinion’s move to take 52,959 square feet at Sorrento Mesa.

Big Deals

Key property purchases of the period included San Diego Income Properties LLC’s acquisition of a Poway building for $11.8 million; Bel Air TT LLC’s purchase of a Mira Mesa building for $5.8 million; and Gilead Sciences Inc.’s acquisition of an Oceanside industrial building for just over $4.5 million.

Christopher Reutz, research director in the San Diego office of brokerage firm Colliers International, noted that optimism about their economic prospects is gradually prompting industrial firms of all sizes to take the plunge on expansions and relocations they may have hesitated to make even just a year ago.

“The big difference from a year ago is that there are more companies doing deals under 20,000 square feet,” Reutz said. “It isn’t just the bigger players making moves.”

Rising confidence, and firms looking to take advantage of long-suppressed leasing rates before they increase, he said, helped the San Diego region attain 560,000 square feet of positive net absorption — more space being occupied than vacated — in the first quarter. That was the region’s strongest performance since the fourth quarter of 2010.

Reutz said that if space absorption continues at its first-quarter pace, demand in 2012 will be close to pre-recession levels.

Barring a major jolt to the national economy, experts say the leasing trends are likely to continue for the rest of the year, especially since new industrial construction remains scarce locally.

Colliers noted in its recent report that no new construction was completed in the first quarter. There is currently 253,245 square feet under construction: a 129,845-square-foot build-to-suit project for Hoist Fitness in Poway, set for completion in the fourth quarter; and a 123,400-square-foot addition to the Illumina Inc. campus in the University Towne Center submarket, to be finished in mid-2013.

In the meantime, according to Cassidy Turley, industrial tenants currently shopping the market are looking for more than 4.9 million square feet countywide — including 2.5 million in North County and 2.4 million in the Central and South County regions — over the next 24 months.

Growing Needs

Many firms currently with a San Diego County presence are looking to relocate because they’ve outgrown existing space. For instance, SD Electronics Inc. recently signed a two-year, $120,000 lease for 7,315 square feet at Roselle Technology Park in Sorrento Valley, according to a recent statement from the park’s owner, Westcore Properties of San Diego.

The company required more warehouse space for its distribution and online sales of electronics components. Broker Irwin, who represented both landlord and tenant in the transaction, said the electronics firm would roughly double its size as it relocated from its current Sorrento Mesa during April.

A spokesman for SD Electronics said the firm is currently focused on its move and would defer comment until its transition is completed.

In many cases, Irwin said, relocation decisions are made based on where business owners reside, and their desire to make facilities easily accessible to employees. Ideal locations remain toughest to find in submarkets with the tightest industrial vacancy rates, such as Sorrento Valley and Kearny Mesa.

The region’s overall industrial vacancy rate has dropped from a peak of 12.7 percent at the end of 2009. Similar to 2011 patterns, Cassidy Turley projects that the most active tenants in 2012 will continue to be from the manufacturing, life science, technology, transportation, warehousing and utilities sectors.

For instance, there are currently 37 tenants in the market looking for manufacturing space totaling 1.7 million square feet countywide, most of it in North County.

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