Q2 2012 San Diego, California Industrial Submarket Trends

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Q2 2012 San Diego, California Industrial Submarket Trends

Kearney Mesa and Miramar are the leading industrial markets here, according to area observers, with Sorrento Mesa and Torrey Pines prominent in high technology. These areas are included in the Reis Central, North Central and I-15 submarkets. Most of the growth, however, is occurring in the far north and far south of San Diego County, where land remains available. The South County in general and Otay Mesa in particular, close to the ports and the Mexican border, have become a distribution center for the region.

Central

  • The Central submarket, centered on Downtown San Diego, includes many facilities and related contractors for the U.S. Navy, along with San Diego’s airport and related industrial activity. Industrial redevelopment has been an issue here, particularly on the waterfront where port, Navy and recreation/tourism are in conflict.
  • For 7.0 million square feet of warehouse/distribution space, Reis reports a vacancy rate of 8.9% and an average asking rent of $8.41 psf.
  • The vacancy rate is up 10 basis points from the prior quarter and down 110 year-over-year. The net absorption total for the second quarter was negative 9,000 square feet. The average asking rent and the average effective rent are unchanged for the quarter, with the average effective rent recorded at $7.65 psf. The asking rent is unchanged over 12 months; the effective rent is up 1.3%.
  • For 1.3 million square feet of Flex/R&D space, this submarket has an average asking rent of $8.74 psf, and a vacancy rate of 5.2%.
  • The vacancy rate fell 100 basis points year-over-year but is up 160 over the quarter. Net absorption was negative 21,000 square feet. The average asking rent is unchanged over the quarter, and the average effective rent is also unchanged at $7.81 psf. These rates are up 0.6% and 2.1% year-over-year.
  • Cushman & Wakefield reports an overall vacancy rate of 4.7% for its San Diego Central submarket, with rates of 5.1%, 4.7%, and 4.4% reported for Downtown, East City, and South City, respectively. The San Diego Central warehouse/distribution direct weighted average rental rate is $8.28 psf. For manufacturing space, the rate is $7.44 psf.
  • For Central County, Cassidy Turley reports vacancy at 9.9% and an average asking rent of $11.28 psf.

North Central

  • This submarket includes the industrial area of Kearney Mesa and the biotech R&D cluster around La Jolla and University City.
  • Reis reports a vacancy rate of 8.1% and an average asking rent of $10.22 psf for 4.7 million square feet of warehouse/distribution space in the North Central submarket.
  • The vacancy rate fell 340 basis points year-over-year, and second quarter net absorption increased somewhat to 8,000 square feet. The average asking rent increased 0.2% and the average effective rent increased 0.5% over the quarter, the latter to $9.27 psf. Asking rents are up 0.5%, effective rents are up 1.9% from one year earlier.
  • For 6.6 million square feet of Flex/R&D space in the North Central submarket, the vacancy rate is 9.6% and the average asking rent is $12.32 psf, according to Reis.
  • Net absorption finished the second quarter at negative 7,000 square feet, Reis reports. The effective average rent is $10.97 psf. Asking and effective rents increased 1.0% and 1.5%, respectively, in the second quarter, and are up 1.3% and 3.1%, respectively, year-over-year.
  • Cushman & Wakefield reports an overall vacancy rate of 5.6% and a direct average rental rate of $9.72 psf for warehouse/distribution and $12.72 psf Flex/R&D in its 22.1-million-square-foot Central Suburban submarket.

I-15

  • This large submarket includes the Sorrento Valley, Sorrento Mesa, and Torrey Pines R&D-oriented areas near the coast and the Miramar industrial area near the Miramar Marine Corps Air Station further inland. Inland communities such as Escondido and Poway are included as well.
  • According to Reis, there are 14.6 million square feet of warehouse/distribution space in this submarket with a vacancy rate of 17.4%, and an average asking rent of $8.73 psf.
  • Net absorption has been negative here, at 131,000 square feet in the first quarter and 91,000 square feet in the second. The average asking rent fell 0.2% for the quarter, with the average effective rent down 0.4% at $7.63 psf. The effective average is down 0.6% here year-over-year. The asking average is down 0.5% annually.
  • The 17.0 million square feet of Flex/R&D space here is the largest among the submarkets. It has a vacancy rate of 19.3%, up 10 basis points from the previous quarter, and an average asking rent of $12.38 psf, according to Reis.
  • The vacancy rate is down 20 basis points from a year earlier, but second quarter net absorption was negative 20,000 square feet. The average asking rent fell 0.2% in the second quarter as the average effective rent increased 0.4% to $10.79 psf.
  • In its Mid City market, Cushman & Wakefield reports a vacancy rate of 9.4% and a direct weighted average net rental rate of $9.00 psf for warehouse/distribution and $15.96 psf for Flex/R&D for 43.6 million square feet. For 20.7 million square feet in its I-15 Corridor submarket, this source reports a vacancy rate of 12.0% and a rental rate of $7.80 psf for warehouse/distribution and $13.68 psf for Flex/R&D.
  • For the I-15 Corridor, Voit reports a vacancy a vacancy rate of 6.77%, and an average asking lease rate of $10.44 psf.
  • According to Cassidy Turley, “the most space was returned to Sorrento Mesa, Escondido, and Scripps Ranch submarkets, slightly over 100,000 square feet in each submarket.”

Northwest

  • The Northwest submarket includes the communities of Oceanside, Carlsbad and Vista along with Camp Pendleton Marine Corps Base.
  • This submarket has 15 million square feet of warehouse/distribution space with a vacancy rate of 11.6% and an average asking rent of $7.63 psf, according to Reis.
  • The vacancy rate is up 30 basis points for the quarter and up 20 from a year earlier, as net absorption finished the quarter with negative 42,000 square feet. The average asking rent was unchanged for the quarter and the average effective rent decreased 0.1% to $6.98 psf. The year-over-year losses are 2.3% and 2.6%, respectively.
  • For 9.5 million square feet or Flex/R&D space, Reis reports a vacancy rate of 18.3% and an average asking rent of $10.99 psf.
  • Net absorption finished the quarter at negative 9,000 square feet. The average asking rent fell 0.1% and the effective rent is down 0.1% to $9.51 psf. The asking average is down 3.3% year-over-year, while the effective rent is down 1.9%.
  • Cushman & Wakefield reports a vacancy rate of 9.9% for 52.8 million square feet in its North County submarket. This source puts the direct weighted average net rental rate at $8.76 psf for warehouse/distribution and $12.00 psf for Flex/R&D.
  • For North County, Cassidy Turley reports a second quarter vacancy rate of 9.5%, and average asking rent for all types of industrial space of $9.36 psf.

South

  • The South County submarket includes the Otay Mesa distribution area along the Mexican border, along with several communities that have port facilities along San Diego Bay.
  • The 21.8 million square feet of warehouse/distribution space here is the most in San Diego County, according to Reis. Reis reports a vacancy rate of 12.4% and an average asking rent of $5.88 psf, least among the submarkets.
  • Net absorption staged a comeback here, posting positive 216,000 square feet after negative 71,000 was recorded in the first quarter. The vacancy rate is down 100 basis points for the second quarter and down 90 from a year earlier. The average asking rent increased 0.9% in the second quarter, while the effective average was up 1.3% at $5.28 psf. Year-over-year losses are 2.6% asking and 2.2% effective
  • For 3 million square feet of Flex/R&D space in the South submarket, Reis reports a vacancy rate of 23.2% and an average asking rent of $8.68 psf.
  • The vacancy rate fell 200 basis points during the quarter and is down 230 basis points year-over-year. The average asking rent is up 0.1% for the quarter but down 2.5% for the year. The average effective rent, at $7.58 psf, is up 0.9% for the quarter but down 0.5% over 12 months.
  • For its 31.2-million-square-foot South County submarket, Cushman & Wakefield reports an overall vacancy rate of 10.8% and a direct weighted average net rental rate at $6.36 psf for warehouse/distribution and $10.08 psf for Flex/R&D.

East

  • Industrial space is limited in East County, which was occupied by orange groves until recently, and also includes mountains and desert.
  • Reis reports 6.5 million square feet of warehouse/distribution space and 1.4 million square feet of Flex/R&D space in this submarket. The warehouse/distribution space has a vacancy rate of 9.0% and an average asking rent of $7.28 psf. The Flex/R&D space market has a vacancy rate of 10.1% and an average asking rent of $9.15 psf.
  • Cushman & Wakefield reports an overall vacancy rate of 7.9% and a direct weighted average net rental rate of $6.12 psf for warehouse/distribution and $9.48 psf for Flex/R&D in its 14.0-million-square-foot East County Suburban submarket.