Demand for industrial buildings has never been higher in San Diego County, and some of the new ones going up are a far cry from the sterile warehouses of old.
North County developer Ben Badiee just broke ground on a 50,150 square-foot building in the Carlsbad Oaks North Business Park that he promises will have amenities to rival those of many office projects.
Carlsbad Innovate “is going to really be geared to attracting small or mid-sized businesses,” said Conor Boyle, an associate vice president of Colliers International — the commercial brokerage that is marketing the project.
Where more traditional industrial buildings typically draw companies looking for large blocks of space, Innovate’s target market is companies that need 5,000 square feet to 9,000 square feet of space.
Going for a far different market, but also with an emphasis on amenities are industrial projects by Ryan Cos. in Carlsbad and Poway.
411,000 Warehouse Project
Working in a joint venture with DWS Group, Ryan Cos. recently completed Pacific Vista Commerce Center — a 411,000 square-foot Class A industrial warehouse project on a 25.9 acre site in the Carlsbad Oaks North Business Park.
“That’s a true one-of-a-kind project,” said Ryan Grove, director of real estate development for Ryan Cos.
“Typically, industrial buildings are pretty bare bones and aren’t very exciting. This project has ocean views up on a hill, a 0.91 megawatt rooftop solar station, and 24 EV (electric vehicle) charging stations and we can expand to 44,” Grove said. “We’ve got about 28,000 square-feet of outdoor amenities.”
The project’s three buildings include dedicated space for food trucks, a sand volleyball court, a bocce ball court and secured bike storage for 35 bikes.
The buildings have minimum 32-feet clear heights to give tenants more room to stack products than in older industrial buildings, some of which top out at 24 feet.
The project also has separate egress and entrances for trucks.
Ryan has also completed construction of Ridgeway Business Park in Poway — a three building project totaling 304,000 square feet on Kirkham Way and General Atomic Way, and in February broke ground for Vantage Point — a 533,950 square-foot project with two buildings on a 39-acre site at 14400 and 14500 Kirkham Way in the South Poway Business Park.
Vantage Point will have 36-foot clear heights and 113 dock-high loading spaces.
Elevated about 40 feet above Scripps Poway Highway, Vantage Point will have “just phenomenal views” of the mountains, Grove said.
Each building is designed to include two-story office space and glass rollup doors to provide indoor/outdoor collaborative space and extensive outdoor amenity and dining areas.
Badiee’s Innovate takes the emphasis on amenities even further.
“This type of project has never been done before in North County, Badiee said.
Built on a 4.3-acre site at 2810 Caribou Court, Innovate will have about half of its space designed for office use, Badiee said.
Innovative-Type Tech Cos.
“The objective for us is to have an innovative space that’s brand new for up-and-coming entrepreneur-type, innovative-type tech companies that really value their team members and their employees,” Badiee said. “They really may use the warehouse, but not necessarily as a traditional warehouse use. They may have some 3-D printing equipment in it. They may have some of their team members in the open space of the warehouse. It’s the kind of thing where architectural firms may go in.”
The project will have air conditioning throughout with an eye toward companies that are looking for an office environment that also provides the wide-open space of a warehouse.
“I highly doubt that they’re going to have forklifts in the back,” Badiee said.
Windows will be double-glazed and “the whole façade has storefronts” which open up to the warehouse space.
“You feel like you’re walking into the lobby of a Google,” Badiee said.”
The site will have barbecue areas, fire pits and landscaped areas for workers to congregate or work in collaborative teams.
Several developers have been renovating older industrial buildings to provide the room those companies need, Boyle said.
Innovate will be the first ground-up project in North County targeting that market, Boyle said
In focusing so much on amenities, Innovate is taking a cue from new office projects.
“We’re creating a space that’s more attractive to the millennials,” Boyle said.
Rents in Innovate will be 30 percent higher than the average in North County and 2 percent higher than the county average,” Boyle said.
‘A Special Niche’
Innovate is meant to fill a special niche in the market, and Badiee said it’s unlikely it will start a trend.
“I think it will be an addition, or it’s a need of the market that we’re going to fill,” Badiee said. “Would I build five of these projects? No.”
Because there’s so little of it available, industrial property in San Diego County is bringing record high rental rates, according to a second quarter industrial market report from the commercial real estate brokerage CBRE.
Vacancy rates also are rising to 5.2 percent after reaching an all-time low of 3.6 percent in the third quarter of 2018, CBRE reported, adding that “this is largely attributed to an increase in supply as developers bring more speculative space to market.”
Even with the increased vacancy rate, demand is as strong as ever with more than 250 industrial tenants still in the market at the end of the second quarter of 2019 for spaces of more than 10,000 square feet, according to CBRE.
“This is the strongest industrial cycle that I’ve ever been,” said Ted Cuthbert, a senior executive vice president of Colliers.
“Industrial, good clear heights, quality projects are commanding rates that we’ve never seen and tenants are not balking at the rates,” Cuthbert said. “I really think that the industrial market will continue to be strong and I don’t think we have an overbuilt market. I think we will continue to be strong.”
Badiee also sees no letup in the demand for industrial space in San Diego County, despite predictions by some economists that the economy will slow in 2020 and 2021.
With space hard to come by in the county’s traditional life science submarkets, companies are spreading out to neighboring areas, Badiee said.
“The fundamentals for life science are just so incredible in San Diego, a lot of areas that weren’t taken for life science are being taken for life science,” Badiee said. “Add to that the fact that online shopping is growing like crazy.”
Grove of Ryan Cos is equally confident that the San Diego industrial can withstand an economic downturn.
Recession Resistant
“Industrial is just a different product type. You just look at the vacancy in the market,” Grove said. “A recession is always going to hurt any product type, but the industrial Class A warehouse product will weather a recession better than any other product type.”
