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Developers Look North and South for Scarce Industrial Space

BY CANDICE REED

Business has been good for Jim Billings, owner of Active Marine Builders, a specialty marine business in National City. So good, in fact, that his company outgrew the 7,350-square-foot space he has been renting for more than a year.

The problem Billings is now facing is finding a piece of property to build his own shop to house his expanding business.

“There’s no property to be found in San Diego,” Billings said. “I know because I’ve looked for a year. I’m going to probably buy a pre-existing one in the area, but my dream was to build it from the ground up.”

Apparently, it’s becoming a challenge to find land in San Diego to build industrial spaces, with many areas of the county tearing down tire dealers, recycling centers and auto repair shops to make way for spaces that will bring in higher rents for the landlords.

Barrio Logan is one example of how a community that was once a major industrial area is now undergoing redevelopment, focusing more on mixed-use projects, and less on industry.

“We’re seeing a real clash on the industrial side,” said Jim Torti, a principal of Blokhaus Development in San Diego. “The towing yards are slowly moving out and longtime owners of industrial sites are changing and converting their property to other things. This area has always been filled with industrial properties, but the community is ready for a change.”

Otay Mesa, with its easy access to the Otay Mesa Port of Entry at the U.S.-Mexico border, is not turning the industrial market away, with several thousand acres being designated by the county for industrial space. Planners expect that more than 20 million square feet of industrial space should be available in Otay within the next two decades.

Undeveloped industrial land in the Otay Mesa area currently costs about $12 per square foot, according to the city Planning and Community Investment Department, but many small industrial owners don’t want to commute that far south.

“For a lot of people Otay is just a little too far away,” said James V. Camp, senior vice president of Voit Development Co. based in Newport Beach. “The challenge for developers these days is finding land to build on, and it’s happening in all markets.”

Camp said his company recently completed the Chula Vista Commerce Center, a six-building, 183,000-square-foot industrial park , their only ground-up project on the books.

According to Camp, the Chula Vista Commerce Center is the largest new industrial project built within the past 20 years in the South Bay community. The commerce center encompasses six buildings comprising 34 units and is located at 3513-3523 Main St. in Chula Vista. The units, which became available for sale or lease last month, range in size from 2,000 square feet to 76,000 square feet.

“We are experiencing strong demand from small industrial owners in the area looking to buy a building in this flourishing industrial area,” Camp said. “We already have 10 units in escrow and have closed escrow on four.”

Camp explained that industrial property is so scarce in the county that companies are pulling out all the stops to purchase available lots and that rental rates on existing properties are at a record high.

“There’s a little more land available this year because home builders are pulling back in this market,” he said. “But every time a property is available, the owner gets 10 offers. It used to be that obtaining the permits to build was the main challenge, but now you have to fight and compete for the land. This new business front is tough for the industrial market.”

Vacant property in North County is also becoming scarce as companies buy up land as soon as it comes on the market.

“Prices are a little bit better up here, but even cheaper in Temecula,” said Don Brooks, chief executive officer of Doster Construction Co. based in Birmingham, Ala. “We bought three properties last year, but we haven’t been able to find one yet (this year). We may be looking closer to Temecula soon.”

According to a recent CB Richard Ellis report, North County’s average asking lease rate is $1.01 per square foot, compared with $1.45 in central San Diego County. Vista’s lease rate is 83 cents per square foot, while San Marcos’ is 78 cents.

North County has about 47 million square feet of available industrial property with a vacancy rate of 9 percent. The Central County has 88 million square feet and a 5.2 percent vacancy rate.

Escondido has about 6.8 million square feet, with a 3.3 percent vacancy rate; Vista has 12.3 million square feet and a vacancy rate of 7.4 percent; Carlsbad, 13.1 million square feet with a vacancy rate of 12.5 percent; and Oceanside has 6.9 million square feet with a 13.4 percent vacancy rate.

“On each end of the county the prices and the availability gets a little better,” Brooks said. “But the competitions for these properties are fierce and add that to the rising interest rates and you have a tough year for industrial developers.”


Candice Reed is a freelance writer for the San Diego Business Journal.

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