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Industrial leases see uptick in San Diego

The San Diego industrial market ended the fourth quarter of 2012 with a vacancy rate of 9.4 percent.

According to a CoStar Group (Nasdaq: CSGP) report, the industrial vacancy stood at 10.6 percent as recently as the first quarter of 2012, and with construction at a virtual standstill, it has been steadily declining since.

The only industrial building delivered in the county last year was the 129,765-square-foot Poway Corporate Center at 11900 Community Road, completed in the fourth quarter of 2012.

Hamann Cos. developed the Poway Corporate Center. Fit Properties, a real estate investment firm whose address is in the building, owns the asset. Fit paid $15.03 million to acquire the building on Christmas Eve.

The largest project under way in the fourth quarter wasn’t large. It was the 49,256-square-foot building at 6655 Camino Maquiladora on Otay Mesa that is now occupied by Goodwill Industries. That property has 5.25 acres of adjacent land for future development.

Another 31,246-square-foot building under construction as of the time of this writing is the J. Craig Venter Institute in La Jolla on the Torrey Pines Mesa, which will be 100 percent occupied. The Venter building is expected to be completed before the end of the year.

Net absorption for the overall San Diego industrial market was positive -- 1,326,811 square feet in the fourth quarter of 2012, compared to 606,889 square feet in the third quarter of 2012, 324,594 square feet in the second quarter of 2012, and 404,032 square feet in the first quarter of 2012.

Move-outs during last year included Imperial Toy, which vacated 155,000 square feet at Three Piper Ranch to go into 257,972 square feet in the Siempre Viva Business Park.

Other tenants moving out of large blocks of space in 2012 included Callaway Golf Co. (NYSE: ELY), which has moved much of its operations to Mexico, leaving 150,159 square feet at 2081 Faraday Ave. in Carlsbad; and Computer Geeks moving out of 89,686 square feet at 1890 Ord Way in Oceanside.

Along with Imperial Toy, tenants moving into large blocks of space in 2012 included SKLZ, a sports equipment maker that moved into 150,159 square feet at 2081 Faraday Ave. in Carlsbad; and U.S. Joiner, a marine equipment supplier moving into 88,372 square feet at International Business Center on Otay Mesa.

In addition to other lease signings, a 124,068-square-foot deal was signed by cosmetics producer Pacific World Corp. at the Siempre Viva Business Park.

Otay Mesa, which had about 3 million square feet of vacant space at the peak of the recession in and around 2009, has been gradually filling the empty spaces since.

While the overall vacancy for the South Bay is still about 3.3 million square feet by CoStar’s accounts, Otay Mesa’s share of that has been reduced to about 2.3 million square feet. Otay still has the highest percentage of vacant space at 14.9 percent, but Carlsbad, which has 1.99 million square feet of vacant space for an overall vacancy of 14.6 percent with 2.02 million square feet of empty space, is a close second. By contrast, the industrial vacancy in Santee was just 2.5 percent with 100,167 square feet of overall vacant space.

The average quoted asking rental rate for available industrial space was $9.82 per square foot per year at the end of the fourth quarter 2012 in the county. This represented a slight 0.4 percent decrease in quoted rental rates from the end of the third quarter 2012 when rents were reported at $9.86 per square foot.

Total industrial inventory in the San Diego market area amounted to 189.64 million square feet in 8,601 buildings as of the end of the fourth quarter 2012.

Fourth-quarter statistics on building sales weren’t available for this report but the first nine months of 2012 saw 64 industrial sales transactions with a total volume of $278.5 million, compared to 52 transactions with a total volume of $314,915,422. The price per square foot averaged $113.58.

Along with Fit Properties’ acquisition of the Poway Corporate Center, there were numerous other sizable industrial sales last year. One of these sales was the $52.5 million sale of a 168,356-square-foot property at 16425 Via Esprillo and 11020 Via Frontera in the Rancho Bernardo area. A partnership controlled by San Francisco-based Drawbridge Realty Trust was the buyer in the transaction last December.

Also, at the end of the year, a five-building, 102,200-square-foot industrial/research and development complex at 8581-8601 Aero Drive, on the southwest corner of Aero and Sandrock Road in Kearny Mesa was sold to a partnership controlled by Broadstone Corp. of Dallas for $17.95 million.

Not all the property transfers were traditional sales. In Otay Mesa, for example, some properties were given up either via a foreclosure or, as in the case of a 104,000-square-foot industrial building at 2350 Siempre Viva Court, were returned to their lenders in a deed-in-lieu of foreclosure action. As noted by CoStar, that property went back to an entity controlled by General Electric Capital Corp.

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