San Diego Business Journal

Demand for industrial space in San Diego was intense in the third quarter of 2019 with no sign that it will ease heading toward 2020, according to some commercial real estate brokerages.

Kidder Mathews reported that rental rates sought by building owners reached an all-time high in the third quarter at $1.14 per square foot, nearly doubling the historical average.

Presenting an equally favorable review, Colliers International reported that construction of new industrial buildings in the third quarter was at its second highest level in the past 12 years, pushing vacancy rates up slightly but keeping them at a respectable rate of 4.1% for pure industrial product and 5.4% for a combination of industrial and research and development space.

“Tenants continue to gobble up space,” said Evan McDonald, a senior vice president of Colliers International, despite rents that he said have increased by 7% year-over-year since 2015.

“Overall, demand in the industrial market in San Diego continues to thrive,” McDonald said.

At the end of the third quarter, 1.7 million square feet of new industrial and research buildings were under construction with all but 1.5 million square feet of that expected to carry over to 2020, according to Colliers International.

So far this year, nearly 1.6 million square feet of construction has been completed with the total for the year expected to reach 1.8 million square feet, according to Colliers International.

Huge New Supply Last Year

Although he has slightly different figures, Jerry Holder, director of research for Kidder Mathews in San Diego County, wrote that “the San Diego industrial market received the largest volume of new supply last year,” adding that “developers show no sign of slowing down.”

Holder estimated that 2 million square feet of new industrial space would be delivered by year’s end.

“A majority of the projects underway are speculative and approximately 80 percent of that space in the pipeline is available for lease,” Holder wrote.

In 2018, North County dominated new industrial construction but developer interest has perked up in South County and Poway, according to Holder.

One of Largest Spec Developments

“A notable project in Poway is Vantage Point, one of San Diego’s largest spec developments in years, with approximately 533,000 square feet currently under construction estimated to complete in mid-2020,” Holder wrote.

Mark Lewkowitz, a senior vice president of Colliers International, said the industrial market is especially strong in Otay Mesa, which he characterized as “the strongest market I’ve ever seen, the highest rental rates I’ve ever seen.”

Great Time to Be an Owner

“It’s just a great time to be an owner of property in Otay Mesa. It’s a great time to be a tenant in the sense that you’re getting these brand new buildings with 32-foot clear height.”

The taller interior space in new industrial buildings give e-commerce and last-mile delivery companies more room to stack products.

“Otay Mesa is pushing the county along in in net absorption,” Lewkowitz said.

Net absorption is a measure of how much space was newly occupied as opposed to newly vacated.

“Otay Mesa has year-to-date, 844,000 square feet of net absorption,” Lewkowitz said. “There’s some great projects coming along.” n