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North County office/industrial market show vacancies, some improvement

The story of office and industrial space in the North County is one of a whole lot of empties, including one property that was lost to foreclosure, but with zero industrial and little office construction, there is cause for encouragement.

North County's office and industrial market was showcased during a recent National Association of Industrial and Office Properties bus tour.

Dennis Visser, a Grubb & Ellis|BRE Commercial principal who helped guide the tour, said he has been encouraged by the fact that Carlsbad has positive net absorption of about 150,000 square feet in the second quarter. North County as a whole had positive net industrial absorption of 58,000 square feet, which doesn't sound like much until you realize that this portion of the region posted negative absorption of about 400,000 square feet in the first quarter of the year.

"I am very encouraged by this," Visser said.

Carlsbad, where the tour started, has about a 27.4 percent office vacancy rate and about a 13.7 percent industrial vacancy rate, according to a second quarter CB Richard Ellis report.

What was abundantly clear during the tour is that brokers will have to do a great deal of work if they hope to fill these buildings. It isn't easy to find new tenants when big firms like Callaway Golf (NYSE: ELY) have been reducing the space they occupy.

Brokers are still looking at a number of vacant buildings in Carlsbad, with many small companies retreating to their home-based burrows. But some larger firms such as Genoptix Medical Laboratory (Nasdaq: GXDX) are actually expanding. The cancer diagnosis firm recently grew its space by 44,000 square feet to 150,000 square feet in a laboratory facility at 2110 Rutherford Road in Carlsbad, Visser noted. Other firms signing leases in Carlsbad in the second quarter included Abbott Labs, CTI Engineering and Pro Performance Sports.

"While many industry groups are stagnant or contracting, such as apparel, golf and active lifestyle companies, other industry groups continue to show strength -- specifically life science, medical device and defense related firms," Visser said.

Although there have been some successes recently, there have also been some ugly signposts of the recession.

Phoenix-based Opus West Corp., which filed for Chapter 11 bankruptcy earlier this summer, had an excellent start to its planned 622,000-square-foot Opus Point development on the old Carlsbad Raceway property, with the first 220,000 square feet built and largely occupied. Filling its 64,327-, 26,054- and 23,109-square-foot buildings on Lionshead Avenue have been more problematic, however. Opus West also had a vacant 3.74-acre lot and a 4.82-acre lot it had yet to sell by press time on the old raceway property master developed by the H.G. Fenton Co. H.G. Fenton still owned about 35 acres as of this writing.

The good news for Opus West is technology firm Aethercom Inc. purchased a 44,000-square-foot building at 3205 Lionshead Ave. for $9.3 million last February.

HCP Inc. (NYSE: HCP), which according to its Web site owns a health care property portfolio of 692 properties in the United States and Mexico, had hoped to develop 700,000 square feet of medical office, biotechnology and corporate headquarters buildings on 41 net acres in Bressi Ranch, but the plan has been placed on hold until the economy improves.

And then there are the properties taken back by their lenders. The five-building, 51,000-square-foot Ocean Collection at Bressi Ranch was originally developed by Urban West Associates of San Diego. The project was taken back by EastWest Bank of Pasadena before being acquired by DEI LLC of Colorado some months ago.

Not only are there hundreds of thousands of square feet of empty buildings in Carlsbad, there are many vacant lots.

Carlsbad Oaks North is an eventual 2 million-square-foot master plan by the Techbilt Cos. Techbilt's latest 49.9-acre phase was scheduled to be delivered by the end of this summer. The first 53.2 acres were delivered in January 2007, and the second 46.5-acre phase was delivered in January of last year. Each geared up for the building boom that didn't come.

Los Angeles-based Kilroy Realty (NYSE: KRC), which has seen its earnings reduced and its stock hammered lately, has more than 25 acres that it purchased in February 2007 for build to suit uses in its portion of the Carlsbad North Business Park along the north side of Faraday Avenue and west of Melrose Drive.

Oceanside, like Carlsbad, is also experiencing large volumes of empty space, but the numbers aren't quite as high. The submarket posted a 22.1 percent office vacancy rate and the industrial vacancy was running at about 14 percent as of the end of June, according to CBRE.

With the office vacancy as high as it is, it could be quite a while before the planned 1.6 million-square-foot Pacific Coast Business Park in Oceanside sees much more beyond its first 206,875 square feet of office and industrial space in the initial 14 buildings. Although many of these buildings along the north end of Avenida del Oro west of College Boulevard are full, some others have reportedly been empty for more than a year.

AMB Property Corp., Guthrie Development Co. and DWO Enterprises are the developers of the business park.

Pacific Coast, being handled by Colliers International, has seen a couple of major land purchases during the past year. Last September, Pacific Marine Credit Union paid $6.6 million for 6.49 acres, where it is building a 60,000-square-foot corporate headquarters in the business park located at the north end of Avenida del Oro and west of College Boulevard.

Stirling Enterprises and Hamann Construction's Ocean Ranch Corporate Center, which will have around 4 million square feet of office and industrial space at build out, continues to be marketed. Lot 16 is available in the park for build to suits. Buildings are currently available ranging from 50,000 to 250,000 square feet.

A total of 16.1 acres is available in the second phase of the La Pacifica portion of Ocean Ranch that is being developed by CruzanMonroe. A total of 340,000 square feet may be constructed in the phase either in a single building or multiples.

The Windstar Corporate Center by Windstar and Nexus Development is another Ocean Ranch property that gives the prospective buyers of industrial buildings for sale or build-to-suit options ranging from 50,000 to 300,000 square feet.

The city has made much of the fact that the walls are up for the 83,400-square-foot VA Clinic located at the northeast corner of Rancho del Oro and Seagate Way in the Seagate Business Park. Rockefeller is the developer and Reno Contracting the general contractor. Completion is slated by early next year.

The NAIOP tour also touched portions of Vista, but the business park development there is largely built out.

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