Otay Mesa may still have plus or minus 2.5 million square feet of vacant industrial space, but that's an improvement from the more than 3 million square feet that was empty a year ago.
According to Colliers International, Otay Mesa, which now has about 15.1 million square feet of industrial space, saw its vacancy balloon from 13.9 percent in 2006 to 25.7 percent in 2009.
Since the end of the recession, steady absorption of more than 1.2 million square feet over nearly three years coupled with no new construction activity had caused the vacancy to settle at the current rate of 16.6 percent by Colliers’ accounts.
The CoStar Group had some different numbers but still showed a positive trend through September. That firm pegged the vacancy rate at about 17.2 percent.
For the first nine months of this year, Colliers reported that 850,808 square feet of net absorption has been recorded and said this trend is expected to continue into 2013. CoStar reported the absorption was a much more modest 345,000 square feet through June. The differences may be attributed to such factors as the timing of the surveys, and how vacant but leased space is counted among other factors.
Vacancy is projected to continue to drop an additional percentage point to 15.6 percent with 2012 net absorption reaching around 1 million square feet for the year, according to Colliers.
Lack of new construction in 2013 — and possibly 2014 — will further drive down vacancy, the brokerage states.
“Since the end of the recession, steady absorption of more than 1.2 million square feet over nearly three years coupled with no new construction activity had caused the vacancy to settle at the current rate of 16.6 percent,” Colliers writes. “For the first nine months of this year alone, 850,808 square feet of net absorption has been recorded and this trend is expected to continue into 2013.”
Firms such as Costco, CamelBak Products, Pacific World, Imperial Toy, FedEx, Panasonic, Circle Foods and Honeywell are just a few that have made not only made a home on the mesa, but have expanded their presence as well.
When asked if there were any surprises in the data, Shane Harmon, a Colliers senior vice president, said he was surprised at the strength of the absorption in what still is far from being an optimal economy.
“Even though we have a long way to go, leasing is strong and rental rates have bottomed out,” Harmon said.
Rental rates, which at one point reportedly got as low as 25 cents per square foot, are still 45 percent below their levels of 2006.
Colliers reports there are some reasons for landlords to be encouraged, however.
“Some rental gains appear to be taking hold as the average has increased the first time since 2007 — up 12 percent since year-end 2011 to 38 cents per square foot per month triple net as of the end of September,” Colliers added.
Colliers said continued velocity may cause rental rates to start rising more aggressively at 3 percent to 5 percent by year-end 2013.
Harmon said there is a lot to like about Otay Mesa. For one thing, he said the mesa and Oceanside are two of the very few places in the county where large scale build-to-suit industrial can happen.
The mesa has other advantages. Harmon said with continued near-shoring with manufacturers moving back to Tijuana from Asia, and the need for these firms to have their supply chain and warehousing on this side of the border, Otay Mesa should be the beneficiary.
“Wages in China are about what they are in Tijuana now so it makes more sense to have those jobs closer,” Harmon said.
Even with the roughly 2.5 million square feet of empty space, investors are still buying properties on the mesa.
In August a Hamann Construction Cos. entity paid $3.8 million for a 16.6-acre parcel at the junction of Ailsa Court and Otay Mesa Road. While this property is entitled for 335,000 square feet of industrial space, with still high vacancies, it could be a long time before this building is constructed unless as a build-to-suit.
El Cajon-based Hamann, which says it's content to keep the property as a long-term hold, has made three purchases on the mesa thus far this year. In June it acquired a 115,290-square-foot warehouse building at 8851-8877 Kerns St. for $5.72 million, out of foreclosure, and purchased the 147,232-square-foot Polk Audio Building at 2550 Britannia Blvd. in January.
Alaskan Copper & Brass Co. paid $4 million to acquire the 77,760-square-foot industrial building at 1840 Dornoch Court in July. Two additional acres of industrial land were included in this purchase.
In August the 29,325-square-foot distribution building was sold for $2.3 million to a unit of The Box Co. of Otay Mesa.
A few sizable leases have happened on Otay Mesa recently. The most notable one this year was Imperial Toy, which intends to double the size of its industrial warehouse from 120,000 to plus or minus 240,000 square feet at 9043 Siempre Viva Road. This space was formerly occupied by Hitachi Transport Systems.
In other recently signed leases, U.S. Joiner went into 88,372 square feet at 2695 Customhouse Court and Monterrey Provision Co. went into 57,587 square feet at 7850 Waterville Road.
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