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Inventory options, rental terms draw industrial, office tenants to North County

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While the slow economy has curtailed countywide industrial and office leasing activity, Cushman & Wakefield reports that industrial and office transactions are still being inked -- particularly in the North County region where defense, medical device, education, golf and high-tech companies are gravitating.

"The North County region continues to see new leases executed in both the industrial and office sectors," said Tucker Hohenstein, senior director and industrial specialist with Cushman & Wakefield's North County office. "The area's inventory offers full-floor and full-building opportunities at rates that provide tremendous value in today's tenant's market."

The Cushman & Wakefield report shows that North San Diego County -- which includes Carlsbad, Vista, San Marcos and Oceanside -- recorded 2.5 million square feet of industrial leasing activity in 2008, the highest of any San Diego County region. The office sector reported 858,400 square feet of leasing activity, ranking third in the county behind the central suburban and mid-city regions.

"The industrial sector in North County is very well positioned, with just 8.5 percent vacancy and only 422,000 square feet of new space under way," Hohenstien said. "We anticipate that leasing activity in 2009 will keep pace or even exceed that of 2008 as landlords continue to be aggressive in offering concessions and incentives."

According to John Hoffmann, director and office specialist with Cushman & Wakefield, the office sector is still recovering from the wave of new construction that occurred between 2003 and 2007. However, he reported that construction has fallen dramatically to just 275,000 square feet, and this will help the area from seeing any significant spikes in vacancy over the next 12 to 18 months.

"Office vacancy of 19.1 percent in North County is higher than any other region in San Diego due to the huge influx of inventory that was added to the market just before the downturn," Hoffmann said. "The decline in new construction will give the existing inventory a chance to absorb. Like the industrial sector, tenants who are anticipating their future growth needs see opportunity to lock in space commitments at more affordable prices."

On the industrial side, Cushman & Wakefield cited several major leases that have recently been signed.

In Vista, AutoGenomics, a privately held company that has developed the first automated, microarray-based multiplexing diagnostic platform, signed a 108-month lease for 126,715 square feet of manufacturing and warehouse space at 2980 Scott St.

In Carlsbad, Titleist, a golf equipment company, signed a five-year lease for 161,300 square feet at 2819 Loker Ave.; Greatcall Inc., maker of the Jitterbug cell phone, signed a five-year lease for 23,400 square feet on Camino Vida Roble; Xenonics Holdings, a company specializing in night vision technology, signed a five-year lease for 13,230 square feet in Opus Point; and Bonnier Corp., a media company, signed a 10-year lease for 31,000 square feet of space in Palomar Airport Business Park.

Escondido has recorded several lease renewals, including Fiber-Tech Engineering for its space on Rock Springs Road; and Nexsan Technologies for its space in Enterprise Heights Industrial Center. In San Marcos, One Source Distributors signed a 16-month lease for 33,900 square feet on Linda Vista Drive.

On the office side, Oceanside welcomes the Pacific View Charter School, which signed a three-year lease for 27,500 square feet of space in Venture Commerce Center.

"Right now, the industrial sector is leading the office sector in leasing activity. This is due to the fact that the industrial sector in general tends to be more stable during recessionary periods," Hoffmann said. "However, with very little new office space on the horizon and the expectation that the office sector will begin stabilizing later this year and into 2010, we anticipate that more companies wanting a North County location will begin taking advantage of the current leasing climate."

According to Hohenstein, the North County region in general has become a preferred location not only for distribution companies, but for companies in traditional growth industries such as technology, education, sports and medical.

"There just isn't the supply of quality, large space options in the mid-county regions for these types of companies to locate in," he said. "Moreover, a North County location gives these companies access to the research centers and institutions just south in Torrey Pines, as well as quick access to executive and work force housing and good freeway access to San Diego as well as Orange County to the north."

Investors are also recognizing opportunity in North County. "With limited entitled land available for development and the high costs of new construction, the area's existing space is still seeing investment demand. This will only increase once capital begins flowing again," said Hoffmann.

Cushman & Wakefield reports that most of the recent sales activity has been for Class B and C space.

Notable transactions in the first months of 2009 included Ross Industrial Company I LP, which purchased three Class C office buildings in Escondido for $2.5 million; Aethercomm Inc., which purchased a Class B R&D building in Opus Point Phase II for $9.34 million; Lamar Properties LLC, which purchased a Class C warehouse building in Oceanside Gateway Business Park for $1.6 million; the Franklin Down and Martha Luman Smith Revocable Trust, which purchased a Class B warehouse building in San Marcos for $3.5 million; and Hodad LLC, which purchased a warehouse building in Carlsbad for $2.56 million.

Average asking rental rates for industrial space in North County stand at $1.01 per square foot per month. Office average direct asking rents in North County are $2.42 per square foot per month.

"Both the office and industrial sectors are seeing landlords offering more aggressive concessions, including periods of free rent and higher tenant improvement allowances," Hohenstein said. "This will continue through 2009 and into early 2010, until businesses have easier access to financing and have confidence that the economy is stabilizing."


Grove is president of The Grove Agency.

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