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South County industrial market improving, but sporadically

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Although the South County industrial market has struggled since the recession started some areas are showing promise, according to Cassidy Turley.

Leasing activity in the fourth quarter of last year was slightly off pace compared to the previous quarter, with 16 South County lease transactions totaling 155,646 square feet and three lease renewals for a total of 64,291 square feet.

The leases ranged from 56,140 to 471 square feet, and the average first year rental rate was 65 cents-per-square-foot.

Cassidy Turley brokers Darren Mullins and Erik Parker, who prepared the report, said it is important to note that of the new transactions, 131,629 square feet represented either new migration into the South County region or new business start-ups.

Overall for 2013, the South County markets posted 600,160 square feet of new leases in 71 transactions.

Chula Vista is leading the way, having seen its vacancy rate decline from 7.7 percent in December 2012 to 6.2 percent by the end of 2013. There was no sublease space to speak of in this submarket.

"This represents the best performance among all four South County (the others being Otay Mesa, National City and San Ysidro) submarkets for 2013," Cassidy Turley stated.

Also in 2012, Chula Vista posted 103,182 square feet of new lease transactions, while in 2013 the submarket topped nearly 140,890 square feet.

During the last quarter in Chula Vista, Jump Around Now signed a lease for a 31,182-square-foot indoor recreation facility on Brandywine Avenue and CEW International Medical took 16,000 square feet on Frontage Road.

Chula Vista posted net absorption of 80,868 square feet, with all but about 4,000 square feet of that coming in the fourth quarter of last year.

By contrast, while Otay Mesa posted 45,658 square feet of net absorption in 2013, it returned 20,429 square feet to the submarket in the fourth quarter.

As the fourth quarter drew to a close, Otay Mesa -- which has a total inventory of more than 14.41 million square feet -- had a direct vacancy of 13.9 percent, plus a sublease vacancy of an additional 1.6 percent for a total of 15.5 percent.

While this translates to more than 2.2 million square feet of vacant space, the figure was more than 3 million at the recession's peak.

New Otay Mesa lease transactions during the fourth quarter included Advanced Electromagnetics -- which moved from Santee -- taking 52,900 square feet on Air Wing Road and Clothing International, with 16,442 square feet on Britannia Boulevard.

Mullins said Otay Mesa's market continues to suffer from the recession.

"I'm not seeing any significant increase in activity," Mullins said. "Other parts of the county are much further ahead."

Mullins added that while maquiladora activity in Tijuana and Tecate has increased, as manufacturers are drawn back to this hemisphere, it hasn't resulted in more activity on Otay Mesa.

With only a 4.1 percent overall vacancy rate, the National City industrial submarket would appear to have little to worry about.

While National City managed 18,254 square feet of net absorption in the fourth quarter, it managed 73,644 square feet of net absorption for the year -- a figure that might have been higher, had more space been available.

The San Ysidro submarket, which has about 1.18 million square feet overall, had a 9.9 percent overall vacancy rate at year-end. While it did manage to absorb 21,600 square feet last year, 19,563 square feet of that was in the fourth quarter.

Industrial property sales did seem to outpace the leasing activity.

"With a limited supply of higher quality inventory on the market for sale, the field of qualified buyers has outnumbered the amount of quality options," the report stated. "This has caused slight upward pressure on asking prices for quality buildings, while pricing for older, less functional buildings remain stagnant."

Significant fourth-quarter sale transactions included an approximately 74,000-square-foot industrial building on 4.2 acres, on Wilson Avenue in National City, that sold for $6.3 million to a U-Haul franchisee last month; an approximately 13,470-square-foot industrial building on 0.78 acres, at 2275 Manya St. in Chula Vista, that sold for $1.47 million to Miller Marine; and an approximately 14,811-square-foot building on 1.64 acres, at 2381 Boswell Road in EastLake, that sold for $1.75 million to Uniforms Express, Inc.

"As we transition into 2014, the sales segment of the market is poised to strongly influence the economic recovery in South County as more owner/user buyers become increasingly confident with improvements in the economy," the Cassidy Turley report added. "For the first time in several years, the leasing segment is expected to show encouraging levels of tenant activity across each submarket. Lease rates for larger blocks of industrial space will struggle to improve as tenants continue their aggressive push for concessions, however."

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