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Nearing pre-recession levels

San Diego County's industrial market continues strong in first half

While San Diego County's industrial market is growing stronger, by most accounts, some weak spots exist.

"The San Diego industrial market fundamentals continued to improve in the second quarter, nearing pre-recession levels," acoording to a JLL (NYSE: JLL) report. "Though still positive, net absorption declined dramatically in the quarter, following strong net absorption over the past three consecutive quarters."

In contrast, Cassidy Turley reported 862,008 square feet of year-to-date net absorption, what it called the county’s best mid-year performance since 2008.

By Colliers International's accounts, more than 166,000 square feet of net absorption in the second quarter brought year-to-date net absorption to more than1.1 million square feet.

A total of 434,645 square feet had been vacated in the Campus Point/Eastgate submarket during 2014's first six months, Colliers wrote. LPL Financial (Nasdaq: LPLA) vacated several office/industrial buildings and consolidated its space to the new 414,000-square-foot La Jolla Commons II in University Towne Centre.

Cassidy Turley reported two projects, both located in Poway, totaling 165,000 square feet were under construction during the second quarter.

The 115,000-square-foot property at 14105 Kirkham Way is fully pre-leased to General Atomics, with completion slated for later this summer.

The 46,000-square-foot property at 13350 Danielson Street is also fully preleased, with the Poway Weapons & Gear Range scheduled to move in the third or fourth quarter.

Completed projects include a 156,421-square-foot building at 2450 Business Park Drive in Vista that is 72.3 percent occupied by Applied Membranes.

The CoStar Group (Nasdaq: CSGP) reported tenants moving into large blocks of space during the second quarter included Dr. Bronner’s Magic Soap into 118,597 square feet at 1335 Park Center Drive, Alesmith Brewing Co. into 105,636 square feet 9990 Empire St. in the Miramar market, Otay Mesa Sales, Inc. into 90,538 square feet at 8851-8877 Kerns St. on Otay Mesa and General Atomics into 70,215 square feet at 13950 Stowe Drive in Poway.

JLL reported freight forwarding company DAMCO is in the market for 150,000 to 175,000 square feet of space in Otay Mesa, Factory 2 U is looking for temporary expansion space in Otay Mesa and SAIC is in the market for 60,000 to 70,000 square feet in Kearny Mesa. The defense contractor is relocating from the Sports Arena area.

CoStar reported that San Diego County's industrial market ended the second quarter 2014 with a vacancy rate of 7.6 percent. By Collier's accounts, the countywide industrial vacancy should reach below 7.5 percent at year-end, but was still at 8 percent as of the second quarter's end. CBRE by contrast, pegged the industrial vacancy at 7.1 percent countywide on June 30.

On the sales side, CBRE (NYSE: CBG) noted the 493,898-square-foot, five-building North County Corporate Center in Vista was purchased for $57.66 million by a partnership controlled by Cornerstone Real Estate Advisors last May.

"This year’s $524.6 million was the strongest first half since 2007," CBRE stated.

Cushman & Wakefield's second quarter report emphasized how Petco's $33.08 million purchase of its future 303,000-square-foot, headquarters at 10850 Via Frontera in April, is affecting Rancho Bernardo. Renovations are slated for completion sometime next year.

"This sale improved the vacancy rate in the Rancho Bernardo submarket by 3.1 percentage points (to 11.4 percent) and in the I-15 Corridor by 2.4 percentage points (to 7 percent)," Cushman & Wakefield wrote.

"This year’s $524.6 million (in industrial sales) was the strongest first half since 2007," CBRE stated.

Colliers reported that there wasn't any industrial construction completed during the year's second quarter.

The real estate company said square footage under construction increased 50 percent due to ViaSat’s 143,100-square-foot R&D build-to-suit in Carlsbad.

Colliers reported another new project under construction is a 70,158-square-foot for the EagleBurgmann mechanical seals firm in Lakeside.

"Proposed new development totals nearly 10 million square feet. As the market continues to improve, we will likely see more new build-to-suit and even speculative construction break ground in the last half of 2014 and through 2015," Colliers wrote.

Filling space continues to be a problem in Otay Mesa, which by all accounts still has 2 million square feet of vacant space.

However, the area is about to receive a boost: CBRE noted the cross-border terminal that will give travelers access to Tijuana's Rodriguez Field is under construction, and the Otay Mesa East Border Crossing is also edging closer to reality.

"The Otay Mesa East Port of Entry will reduce the time needed to ship more than $54 billion per year worth of goods across the border," CBRE wrote.

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