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1/25/10
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A just released report shows that the San Diego County industrial market is positioned for a better year in 2010. The report, produced by leading real estate services firm Cushman & Wakefield, says that tenants that previously were taking a wait-and-see approach are feeling more optimistic about the economic recovery and are out in the market looking to capitalize on value opportunities that exist.
According to C&W, the county’s direct vacancy (excluding sublease space) is 9.8 percent as of December 31, 2009. This compares to 7.3 percent at year-end 2008. The central markets of San Diego – including Miramar and Kearny Mesa – remain the tightest in the county with single-digit vacancy and very few large available space options. The northern and southern parts of the county, that still have a temporary oversupply of available space, are faring the worst.
“It’s still a very challenging time for businesses, but with local economic indicators pointing to some job growth in 2010, we expect that by the end of this year we will see a shift towards positive direct absorption for much of San Diego County,” said James Duncan with Cushman & Wakefield. “Fortunately, construction has nearly stopped, which will help with the absorption of unoccupied space as demand for real estate increases with renewed business growth and expansion.”
Countywide there are just 257k sf of construction, all of which is in Vista. This includes R&D Labs’ 135k sf build-to-suit lease facility, and the 122k sf Vista Commerce Center.
“As we enter 2010, we’re seeing a bright spot in the medical, life science, telecommunications and defense industries,” said Tucker Hohenstein, Senior Director with Cushman & Wakefield, “These sectors continue to thrive and due to the diversified industrial product in San Diego, top prospects are actively looking around. This is particularly true in North San Diego County where there remain space options in the 50k sf to 100k sf.”
Both Cushman & Wakefield experts agree that expansions, relocation and general growth in these sectors would contribute to significant gains in leased space and the overall health of the San Diego economy.
The study shows that in addition to renewals and short-term leases -- which don’t impact absorption -- the majority of activity in 2009 included downsizing and subleasing space. This contributed to year-end countywide negative direct absorption of 3.62 msf (781.1k sf in the fourth quarter).
Gross leasing activity, which includes direct leases and subleases but not renewals, totaled 7.4 msf at year-end 2009.
Notable fourth quarter leasing activity includes Outsource Manufacturing, which signed a 59.9k sf R&D lease at 1600 Faraday Ave in Carlsbad; Competitor Group, which signed an R&D lease at 9477 Waples St in Sorrento Mesa expanding from 35k sf to 57k sf; and Hitachi, which signed a 47.6k sf R&D lease at 15231 Avenue of Science in Carmel Mountain Ranch.
In 2009, rental rates continued to soften. As of December 31, 2009, countywide average direct asking rents (NNN) were $.88-per-square-foot per month, down from $1.07-per-square-foot per month at the same time a year ago. These rents include upward pressure from the research and development sector, which averages $1.26-per-square-foot per month. The South Bay reports the lowest industrial rents at $.51-per-square-foot per month.
“Landlords continue to be aggressive with reduced rental rates, concessions and deep incentives,” said Hohenstein. “Tenants are capitalizing on this opportune time to upgrade their workspace while reducing overhead costs.”
Hohenstein adds that in the northern and southern areas of the county there is an oversupply of free-standing buildings and office condos for sale and for lease and even some prime land opportunities for purchase. “These all offer tremendous opportunities for companies. However, these options and attractive rates won’t last forever. As more space becomes absorbed this year and on into 2012, we will see pricing begin to level out.”
R&D product recorded negative direct absorption of 877k sf, compared to 337k sf a year ago. R&D direct vacancy of 11.7 percent as of December 31, 2009, is up from 9.3 percent the same time a year ago, the Cushman & Wakefield study shows.
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