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SAN DIEGO-San Diego’s industrial market, an area made up nearly 160 million square feet of product in 26 distinct submarkets, is divided almost equally among Warehouse/Distribution, Manufacturing, and Flex/RD properties. Manufacturing and Distribution projects, which have hovered around 10% vacant in past years, are outperforming Flex/RD buildings, which posted 16% vacancy in the fourth quarter of 2011 after a dramatic climb after the onset of the recession, says Jay Alexander, managing director of Jones Lang LaSalle.
Like the office market, Alexander says that the industrial construction pipeline is closed which will help accelerate the region’s post-recession recovery. “With land and construction costs high, once demand returns developers will fall back on more profitable building types like RD/Flex and corporate headquarters facilities in lieu of traditional warehouse or manufacturing projects, especially given the surge of demand in the life sciences and technology industries,” he says.
San Diego continues to experience employment growth thanks to cluster industries such as technology, biopharma, retail, and healthcare, he adds.
Alexander’s predictions are that if the defense budget is reduced dramatically in coming years, the impact to the San Diego region will likely be significant—but not as much as expected. “The negative effects on the economy will likely be compartmentalized into sectors dependent on troop housing and retail expenditures,” he says.
He also point out that if increased deal activity and labor and consumer markets continue to improve, the inventory of vacant space available for sublease will continue to burn off at an average of nearly 60,000 square feet per quarter. “Thankfully, this inventory is now at its lowest point in over 10 years,” he says. “As sublease terms expire or the space is leased by bargain hunters, expect this inventory to further diminish which will put upward pressure on direct rents.”
If clarity emerges in the political landscape after the 2012 election, JLL’s Alexander says that the likely result will be an increase in tenant activity of all kinds in San Diego, “which will have significant positive impact on the industrial market in the region.” He adds that “tenants have been sidelined not only by unclear direction from the government, but other factors such as the European debt crisis, a volatile stock market, and a cooling Chinese economy.”
Brandon Keith, a SVP in Voit Real Estate Services’ San Diego office, tells GlobeSt.com that the San Diego industrial market as a whole is “very strong.” Vacancy is down to 8% or 9% countywide, which he says is very low compared to many other markets around the country.
“With little to no new construction due to lack of available industrial land, industrial vacancy will continue to drop at a steady pace, likely to as low as 6% over the next 24 months, provided there is no new shock to the economic system,” he explains.
According to Keith, “This is a supply-constrained market, and there are very few areas in the County with any developable land. The exception is that there are a few pockets of land available in North County, with largest availability in South County, along the US/Mexican border.”
Natalie Dolce Natalie Dolce, editor of the West Coast region for GlobeSt.com and Real Estate Forum, is responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, Natalie was Northeast bureau chief, covering New York City for GlobeSt.com. Dolces background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats Arthur Frommers Budget Travel magazine, FashionLedge.com, Co-Ed magazine, and has also freelanced for a number of publications including MSNBC.com and Museums New York magazine. Contact Natalie Dolce.