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Industrial space is filling up in most North County submarkets

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Cassidy Turley Real Estate Services reported industrial tenants in the North County absorbed 477,077 square feet in the second quarter and 899,866 square feet through the first half of 2012.

The North County by Cassidy Turley’s accounts has 52.49 million square feet of industrial and R&D space, of which 4.52 million square feet was vacant as of the end of June for a 9.5 percent vacancy rate.

Colliers International, which has somewhat different parameters, says the North County has 52.19 million square feet of industrial and R&D space and a 9.8 percent overall vacancy rate.

While each submarket is different, Chris Wood, a Voit Real Estate Services managing director, said most are generally getting tighter.

“Industrial product is becoming scarcer in San Diego, and both buyers and tenants will begin to see increased competition for industrial space over the next 12 to 24 months,” Wood stated. “As demand picks up, we will see lease rates begin to climb and lease terms lengthen.”

Colliers reports there are 58 tenants currently in the market looking for manufacturing space totaling 2.3 million square feet countywide, with 1.1 million square feet of that projected demand coming for industrial space in North County.

Not all industrial spaces are filling up as quickly as landlords would like. Colliers reported Carlsbad, which has an inventory of about 15 million square feet, absorbed 63,687 square feet in the second quarter and 108,030 square feet through the first half of the year. While these are significant figures, the submarket still has a 13.9 percent overall vacancy, which is considered high for industrial space by industry standards.

Vista has the next largest amount of inventory in the North County with 13.37 million square feet, but had a vacancy rate of just 7.3 percent as of June 30 — making it considerably stronger than Carlsbad. Colliers reported Vista absorbed 75,329 square feet in the second quarter and 107,756 square feet through the first half of the year.

Rancho Bernardo is one of those areas that is eventually expected to make the transition from a largely industrial to a mostly office market, but save for a couple of projects, that transformation stalled during the recession. Until the economy improves, the submarket is beset with older industrial buildings that may prove difficult to lease.

Rancho Bernardo, which has about 9.56 million square feet of industrial space by Colliers’ accounts, had a 17.2 percent vacancy rate as of June 30. The submarket didn’t help itself in the second quarter — returning 75,421 square feet — but did manage 71,875 square feet of net absorption through the first half of the year.

Poway’s industrial parks, which have also been around for decades, seem to have a much easier time leasing space these days. Colliers pegged the city’s industrial inventory at about 8.19 million square feet with a very strong vacancy factor of just 4.5 percent at mid-year.

San Marcos and Escondido are two other industrial submarkets blessed with low vacancies. San Marcos is an 8.63 million-square-foot submarket with a 5.9 percent vacancy as of mid-year, and Escondido is a 7.71 million-square-foot industrial market with a vacancy of only 5.4 percent on June 30.

The monthly asking rental rate for industrial space in the North County was unchanged in the second quarter at 78 cents-per-square-foot according to Colliers. By contrast, the South County had average asking rents of 55 cents, though the actual rates for some space on Otay Mesa reportedly got as low as 25 cents within the past few months.

Key industrial lease transactions during the second quarter included Brown Safe Manufacturing, which took 65,000 square feet at 1081 Poinsettia Ave. in Vista; and Communication Test Design signed a lease expansion into 68,182 square feet in the North County Corporate Center in Vista as well.

In the North City market of Torrey Pines, Colliers reported the 43,159-square-foot R&D lease of Takeda San Diego at 10275 Science Park Drive.

Build-to-suit industrial construction that was at a standstill earlier in the year, has begun to pick up. Colliers noted that 253,245 square feet is under construction now. This work includes a 129,845-square-foot build-to-suit for Hoist Fitness in Poway.

While there weren’t many large industrial sales in North County, there were a few. One key industrial sales transaction in North County during the second quarter was that of the 123,454-square-foot Loker Corporate Center at 2777 Loker Avenue in Carlsbad that sold for $11.5 million in mid-June to a BLT Enterprises of Oxnard, Calif.

The Loker Avenue property was 10.8 percent vacant at the time of the transaction according, to CoStar (Nasdaq: CSGP). That property in the Carlsbad Oaks Business Park had previously sold for $13.45 million in November 2005.

A North City industrial property that changed hands during the second quarter was a 76,694-square-foot vacant building at 11011 Torreyanna Road in Torrey Pines that was sold for $10 million to Alliance Real Estate Investment LLC.

The largest industrial sales transaction cited by Colliers in the county in the second quarter was BioMed Realty Trust‘s (NYSE: BMR) $20 million acquisition of the 68,000-square-foot Sorrento Ridge Research Park at 6122-6126 Nancy Ridge Drive in Sorrento Mesa in April. The CoStar Group reports the property is 100 percent leased.

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