Demand for industrial space in San Diego County ended 2021 at record levels with the outlook for 2022 to be a repeat performance of the past year with vacancy rates tumbling and rental rates rising.
“You couldn’t ask for a better market for industrial right now,” said Joe Anderson, executive vice president of the commercial real estate brokerage JLL in San Diego County.
JLL reported that 2021 ended with a county-wide vacancy rate of 1.8%.
“It’s unprecedented,” Anderson said. “The inventory is at an all-time low. Lease rates are at an all-time high.”
In Kearny Mesa, Anderson said that the vacancy rate has been hovering “between zero and 1%.”
About 1.9 million square feet of industrial space is under construction, Anderson said, and most of that is in Otay Mesa.
“I think almost 70% of those under construction are going to be preleased or under negotiation,” Anderson said. “We have buildings that aren’t going to deliver until August and we have tenants in lease negotiations.”
In its fourth quarter report on industrial real estate, JLL wrote that “the San Diego industrial market had a banner year, as year-to-date absorption posted an all-time high, eclipsing the last market peak by an astonishing 58% set in 2001.”
JLL also reported that rents ended the year on an upward trend that is expected to continue to be so strong in 2022 that rents could reach new highs, with far less new construction than is needed to meet demand.
“Rental rates are going to continue to rise because there’s such a lack of supply and such strong demand,” Anderson said. “It’s going to rise sharply in what I call the supply constrained market, which I would call Central San Diego.”
The commercial real estate brokerage Newmark projected that “unprecedented demand and historically low vacancy mean that aggressive rent growth will continue for the foreseeable future, while encouraging more construction.”
Cresa, a commercial real estate brokerage, advised that companies focused on logistics “should be forward thinking” in looking for space.
Among trends reported by Cresa was an increase pace of leasing by Amazon.
In 2021, Amazon accounted for nearly 15% of new leasing including 315,000 square feet of space the company leased in Kearny Mesa, according to Cresa.
With industrial property so scarce in Central San Diego, Anderson said that investors are starting to look at razing older buildings to make room for new projects.
One example cited by Anderson is the former Coleman College site in Kearny Mesa on Balboa Avenue, which he said will be replaced by a new industrial building.
“Right now, it looks like we have a finite amount of industrial land available for development in San Diego County,” Anderson said.
Otay Mesa still has land, but it hasn’t been entitled, a process that can take years.
“We are running out of entitled, permitted land that can be delivered in the next two years. There’s a shortage of that,” Anderson said.