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Carlsbad expecting construction boom in 2005

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For years, Carlsbad's industrial real estate market suffered from a building boom - there was simply too much growth, too quickly.

According to Grubb & Ellis|BRE Commercial broker Mark Emerick, between 1997 and 2000 industrial space in the North County community jumped from 9.4 million square feet to 12.9 million square feet.

Thankfully, construction eventually slowed enough to enable the market to fill the majority of the space, but a building boom is on the horizon once again.

This time, however, it's commercial development that Carlsbad sorely needs, said Emerick, who predicted new construction will be a boon to the coastal city in 2005.

"It's a widely held misconception that the dot-com crash was solely to blame for the higher vacancy rates in Carlsbad," Emerick explained. "San Diego as a whole certainly took a hit, but Carlsbad was not affected nearly to the same degree as central San Diego. What happened to Carlsbad was a ton of new development, followed by a general slowdown in the market. There was more building than we could take on.

"But over the last few years, we haven't had a lot of opportunities - there's been no new development and a limited amount of sublease space remains on the market."

Today there's 13 million square feet of industrial space in Carlsbad. The direct vacancy rate is 11 percent with industrial property available for sublease just over 1 percent - a negligible amount that Emerick said is another important indicator of how the city has recovered from the past glut of space, and now is in need of new inventory.

The turning point for Carlsbad's industrial market came in 2003. In that one year alone, the Carlsbad industrial real estate market absorbed 300,000 square feet of sublease space, Emerick said.

"Up until 2003, we were treading water," Emerick said. "The sublease space was weighing the market down. It peaked at 4.5 percent. Absorbing the sublease space was a watershed moment for us."

Now the Carlsbad market is moving forward on many fronts. About 400 acres of undeveloped land currently is slated to be improved by office and industrial space; with approximately 275 acres planned for completion over the next 12 months, Emerick said. By the time the new properties come online, he estimates the industrial vacancy rate will have dropped below 10 percent - making new inventory almost essential.

Sales prices and rental rates also will likely be on the rise in 2005. A shell single tenant R&D facility currently costs about 75 cents per square foot net - that's up about 10 cents from recent years, said Emerick, who projects that the price will likely be even higher for the new properties coming online.

Attracting tenants to the new inventory should not be a problem, either. The city already is home to the corporate headquarters of K2 Inc., Callaway Golf, The Upper Deck Co., TaylorMade-adidas Golf, Ashworth Inc., Invitrogen and ViaSat.

Carlsbad has much to offer to current and future tenants, Emerick said:

It is surrounded by communities that provide an ample labor pool.

It's located amid an area that's become home to many of the county's decision makers and much of its wealth.

Traffic patterns increasingly favor locations in Carlsbad and other North County communities; the commute on I-5 south is marked by traffic congestion that's only getting worse, but I-5 north toward Carlsbad is comparatively easy.

In addition, with the large plots of finished land coming to the market, Carlsbad is a prime location for corporations looking to consolidate, Emerick said.

"Any company that's in multiple buildings and wants to move into a campus-type setting will find the opportunities are minimal in metro San Diego. The new land opportunities are in Carlsbad. I suspect you will see at least one large corporate user create a new campus in Carlsbad in 2005," Emerick said.

What's more, when it comes to industrial and R&D space, Carlsbad has no real competition in Coastal North County, he said. There is no industrial inventory to speak of in Solana Beach, Del Mar or Encinitas, according to Emerick. The nearest competitor for such property is Sorrento Mesa, a solid 20 miles to the south - and that's south of the traffic congested I-5 and I-805 merge.

"(This year) is going to be a great year in general for Carlsbad because of how attractive a community it is and because of all the new development opportunities - that's going to bring a lot of new users to the market," Emerick said.

For more information about Grubb & Ellis|BRE Commercial, please visit www.brecommercial.com.

Submitted by Grubb & Ellis|BRE Commercial

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