Photo courtesy of Chris Holder.
Preliminary site work is starting for an Amazon distribution center in Otay Mesa.

Photo courtesy of Chris Holder. Preliminary site work is starting for an Amazon distribution center in Otay Mesa.

A Grading has started on an Otay Mesa distribution center for Amazon, underlining what has been an exceptional market for industrial real estate in San Diego County.

The presence of the giant on-line retailer is expected to spur even stronger growth in South County.

“There will be a lot of suppliers that need to be there,” said Chris Holder, a senior vice president of Colliers International in San Diego.

Amazon a Catalyst

Not counting Amazon, more than 327,000 square feet of industrial buildings are under construction in Otay Mesa.

“These are projects that are under way,” Holder said. “There’s five sites under contract right now in Otay for future projects. All of them are pretty far along. Out of the five sites, two have closed escrow.

Amazon hasn’t been forthcoming about the Otay Mesa project, but according to city documents, the Atlanta-based developer that works for Amazon was planning a 2.6 million square-foot building on a 65-acre site at Otay Mesa Road and Fermi Drive.

With more people shopping online as a result of the COVID-19 pandemic, demand for warehouse space is expected to be greater than ever to the benefit of areas like Otay where there’s land available at a price lower than elsewhere in San Diego County.

“There will definitely be some increased demand in the area,” Holder said. “There’s a big sector of the public that never did e-shopping and now they have to and I don’t think they’ll go back.”

Industrial Development Strong in First Quarter

Two commercial real estate brokerages – Colliers and Lee & Associates – reported strong industrial activity for the first quarter of 2020, although the figures were before the COVID-12 pandemic really took hold.

Colliers reported that industrial construction was robust for the first quarter, with 1.4 million square feet of industrial space under construction.

“While the COVID-19 pandemic will certainly affect all commercial real estate sectors, the industrial market will likely experience various outcomes based on the industry sectors within it,” Colliers forecast.

“Once the pandemic subsides and we begin to return to improved economic conditions, San Diego’s defense industry will likely return to normal and the life sciences industry may accelerate growth,” Colliers reported. “Local manufacturing could also see some growth as some businesses consider relocating some international operations back to San Diego.”

Nevertheless, Colliers reported that because of the uncertainty surrounding the pandemic, it will take several quarters before it’s clear whether the industrial market will rebound as strong or even stronger than it’s been for the past eight years.

Otay Mesa and Poway Top Submarkets

Linda Greenberg, a principal of Lee & Associates who specializes in industrial property, wrote in a first quarter 2020 report on industrial activity that Otay Mesa was second only to Poway in the amount of new construction under way with 327,899 square feet.

Poway led the county in industrial construction at 533,950 square feet followed by Torrey Pines with 202,418 square feet, Rancho Bernardo at 141,027 square feet and Chula Vista with 95,000 square feet.

Sorrento Mesa has the highest vacancy rate at the end of the first quarter – 13 percent according to Greenberg – and National City has the lowest at less than 1 percent.

Among the top deals of the first quarter cited by Greenberg were the $11 million sale of an industrial building in Miramar, the $8.4 million sale of a Vista industrial building, the $7.4 million sale of an Escondido industrial building, a $6.8 million sale in Escondido and a $6.7 million sale in National City.

Overall, Greenberg said the COVID-19 pandemic would likely have less of an economic effect in San Diego than elsewhere.

“While no part of the country is immune from the economic turmoil caused by the coronavirus pandemic, San Diego County’s diversified economy should be a buffer against a sustained downturn,” Greenberg wrote in her report.