San Diego Business Journal

North County Feels Effects of Improving Industrial Market

REAL ESTATE: Vacancy Rate for Sector Is at Lowest Level Since Mid-2011 By Lou Hirsh Monday, April 22, 2013

That is gradually changing, especially as smaller companies scout location and expansion options within their means in an improving economy.

“For a while you were seeing mostly large companies increasing their space, but now you’re seeing some of the smaller companies looking around,” Willingham said. “You’re seeing more activity in the incubators and business parks now.”

SR Commercial Principal Adam Robinson, who co-founded the firm with Principal CJ Stos in 2009, said the company has acquired more than $50 million in Southern California industrial properties over the past 12 months. The bulk of the transactions were off market, not formally listed for sale, and the firm’s recent strategy includes locking in still-low borrowing costs before interest rates rise.

Robinson said the North County market has recently attracted a variety of firms from various industries, including some looking to serve multiple Southern California markets from a base close to local freeways. That includes companies in industries such as craft beer brewing, retail and industrial supplies, seeking warehouse and distribution space.

“Some of these companies want to be in North County so that they can serve customers in San Diego and Orange counties, and also into Riverside County,” Robinson said.

Bill Dolan, first vice president in CBRE’s San Diego office, said the overall pace of economic recovery for the industrial sector remains slow, but the region is seeing improvement tied to the rise in home construction, as building supply and home improvement firms boost their real estate footprints.

Dolan estimated that the housing market accounts for about 30 percent of local industrial space use.

The defense sector retains a split influence, with contractors tied to the production of aerial drones ramping up space needs, while others downsize or delay expansion until federal budget issues are resolved.

Eroding Concessions

Recent job growth is likely a harbinger of increased industrial demand countywide, to the advantage of landlords. “Rents overall probably reached bottom in 2012, and you’re seeing the concessions eroding at this point,” Dolan said.

CBRE noted that the first quarter saw the region’s first industrial construction delivery since the third quarter of 2011 — a 129,845-square-foot build-to-suit for Hoist Fitness in Poway. Otherwise, local brokerage firms reported, the only industrial project under construction at the end of the first quarter was a 31,246-square-foot space in Torrey Pines, fully pre-leased by the J. Craig Venter Institute.

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