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Vacancies right for industrial construction, but where's the land?

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San Diego County's industrial vacancy is now in single digits in all the submarkets, but for those who may want to build a speculative industrial building, the opportunities are few and far between.

An Aug. 17 update to a report by The Staubach Co. says that San Diego's countywide direct industrial vacancy stood at 6.2 percent. That compares to 6.8 percent as of the end of the second quarter and an even 6 percent as of the end of the second quarter of 2003.

"Everything is in a very narrow range," said Dennis Hearst, a Staubach principal.

He noted that San Diego County has managed to keep an industrial vacancy level at less than 7 percent overall, even though a total of more than 2.05 million square feet has come on line in 77 buildings during the past year.

Hearst said the county had 466,000 square feet of net absorption in 2004 to date. Hearst said while many companies want build-to-suits, few purely speculative industrial projects are occurring because landlords want their buildings to be more than half committed before a stick comes out of the ground.

As for where the land is, Hearst, like many of his colleagues, agrees that there aren't too many places available.

While Otay Mesa would appear to have vast tracts of land, the sewer system isn't in yet on the far eastern part of the mesa. Hearst added that the completion of Interstate 905 between the border crossings will help make that land more viable.

One thing that is already on the mesa is the 600,000-square-foot warehouse that had been built for Factory 2-U, a 172-store discount retailer in liquidation.

"That's just about as big a rooftop as we have in the county," said Hearst.

He said while it may be difficult to find a single tenant, there has been substantial interest among smaller users for portions of the space.

South San Diego County, which also includes industrial markets in Chula Vista and National City, posted a 7 percent vacancy as of the time of Staubach's Aug. 17 update.

This is higher than the 5.8 percent in the second quarter of 2003, but is still considered to be a very strong market.

In north San Diego County, Hearst said the Poway market still has ready land, but it already is being squeezed by geography.

"We don't have a lot of places. Especially in the central part of the county. You look at the San Diego Spectrum in Kearny Mesa, a lot of that went for residential," he said.

Kearny Mesa's industrial vacancy has remained unchanged in the past year at an extremely low 1.9 percent. "There are few options available in San Diego that are over 100,000 square feet," Hearst said.

Hearst added that Intuit (Nasdaq: INTU), which already expanded at least once on its Viewridge site in Kearny Mesa, is looking for additional space by 2007.

The I-15 Corridor, which includes the South Poway Business Park, where some of the last remaining industrial sites have gone for big-box retail, had a vacancy of 7.9 percent in the August update. This is virtually unchanged over the past year.

"Poway still has some land. People hate the traffic, so they are looking at this seriously," Hearst said. "We're seeing a lot of activity in South Poway, but there's a push toward the office flex buildings."

Mission Valley's industrial market, most of which is in the Mission Gorge area, saw its industrial vacancy climb slightly from 4.7 in the second quarter of last year to 5.1 percent in August.

A market that includes Carlsbad, Vista and Oceanside had the highest countywide industrial vacancy of 8.9 percent in August. Hearst said all markets have traded within a 2 percent range.

While the 8.9 percent figure was the highest in the county, in many markets around the country where manufacturing jobs may have left forever, this may seem like a low number indeed.

The remaining submarkets are perhaps better known for office rather than their industrial prowess, but each are multimillion-square-foot areas that are performing very well.

Sorrento Mesa posted a 4.8 percent vacancy rate in August; Del Mar Heights, 8.1 percent; UTC, 8.7 percent; and downtown, 3.3 percent.

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