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Sunday, Dec 10, 2023

Construction—Poway’s land shortage symbolizes hot market

POWAY , There are no more large vacant lots available in the South Poway Business Park, a fact real estate executives said highlights an industrial land shortage in the county.

“We’re out of large lots and the biggest lot left is 33 acres,” said Ron Mittag, Poway’s economic development manager. “We have 210 vacant acres left in the 700-acre park and that’s about enough for another three years of development.”

He said the shortage of land in the industrial park prompted three high-tech companies looking for large sites to go elsewhere.

He declined to disclose their names.

What will be the last large project to be built in the park has just broken ground this month, he added. Toppan Inc., a Japanese electronics company, is constructing a three-building, 480,000-square-foot office and industrial facility on the south side of Scripps Poway Parkway.

The company intends to manufacture ceramic capacitors and other electronic components at the site, he said.

The shortage of vacant entitled land in Poway and other parts of North County prompted Colliers International, a commercial real estate brokerage, to predict more building on Otay Mesa near the Mexican border and in East County, in a report released this month.

Declining vacancy rates and rising rents, while bad news for tenants, are encouraging to investors, the brokerage said.

Driving Up Values

“It is becoming increasingly apparent our strong economic growth, along with the increasing scarcity of vacant entitled land in many San Diego County premier locations, will drive values up for years to come,” said Robert A. Freund, a Colliers vice president.

The number of sales transactions appears to be slowing, he said. Not only is there a shortage of vacant industrial land, but investors are more cautious about leasing improved industrial property to start-up high-tech companies with short track records and uncertain futures, he said.

Another factor affecting the market slowdown is the lack of fixer-upper properties that can be renovated, then re-leased at a higher rate, he said.

But for Kilroy Realty Corp., a Los Angeles-based REIT that owns 3.5 million square feet of office and industrial property in the county, the industrial land shortage is a positive factor. The company has been acquiring industrial sites in the county for the past several years and now has enough to last for two to three years, said Steve Scott, senior vice president of development. The land shortage will result in higher lease rates for his company, Scott said.

“When we entered the San Diego market we were very aggressive in acquiring vacant land in the various industrial parks in anticipation of growth,” Scott said.

What cities and the county must do to ensure continued economic growth is more developments like Rancho Bernardo and the Scripps Poway Parkway area, he said. Those developments have industrial parks within a short drive of residential areas.

The average annual San Diego County lease rate at $5.70 a square foot net to the landlord is still relatively cheap when compared to other parts of California, Freund of Colliers International said.

On the San Francisco peninsula, the average rate is $18 a square foot per year; in San Jose and Silicon Valley it’s $16.44 a year; and in Orange County the average rate is $7.70 a year.

Freund said Southern California in general would remain among the hottest industrial real estate markets in the country, since investors such as pension funds are attracted by demand for industrial space exceeding construction, a low vacancy rate of 5 percent and rising rents.

“For the near term, the industrial investment market should remain a seller’s market,” Freund said.

There are 135.3 million square feet of industrial buildings in the county, the Colliers study found. So far this year, an additional 1.63 million square feet of new construction has been added.


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