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April 22, 2024
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San Diego Industrial Market Performing at Record Level

4/14/21

This report was proved by Kidder Mathews Director of Research Gary Baragona

The San Diego industrial market continues to perform at record levels amid the pandemic at the end of the first quarter.

MARKET DRIVERS

• The average asking rental rate soared to an all-time historic high posting at $1.23 PSF on a NNN basis, a strong indicator of the highly competitive nature of the San Diego industrial market, even amidst the pandemic. Logistics inventory has been a main driver of rent growth for the industrial market, with rents growing 6% YOY. Otay Mesa and Carlsbad are two key submarkets for logistics supply, both markets posting heavy rent gains over the year of 8.5% and 7.3% respectively.

• Demand in the market remained strong and showed no signs of slowing down in the first quarter. E-commerce had already been on a steady upward trajectory in the recent years but has really dominated during the past year as Americans were forced to turn to online shopping for retail goods and groceries alike. Amazon continues to be one of the most active companies in the San Diego market, taking over 4 msf of space since 2019 in several regions across the county for both distribution and last-mile facilities.

• Investors remain bullish on the San Diego industrial market, focusing on the region’s life science campuses and logistics inventory. Many owner/user sales are experiencing record high prices of $275/ft. - $300/ft. for smaller buildings and some even trading at over $300/ft. for leased out buildings. Prices are increasing as land is scarce in San Diego and with the strong market fundamentals and dynamics, there are no signs of activity slowing down.

ECONOMIC OVERVIEW

• San Diego’s reputation as a top life science and tech market is firmly established, and also includes increased traction of logistics demand throughout the county. These two leading sectors will help the industrial market remain steady in an unstable economic environment during the pandemic.

• The San Diego County unemployment rate in February dropped eight basis points to 7.2% month-over-month, and above the year-ago rate of 3.2%. This compares with an unadjusted unemployment rate of 8.4% for California and 6.6% for the nation. San Diego’s total nonfarm employment fell by 131,700 jobs year over year, with the leisure and hospitality sector recording the largest employment drop from the statewide mandated stay-at-home orders and travel restrictions.

NEAR TERM OUTLOOK

• The San Diego Industrial sector has proven to be the most resilient amid the pandemic among the other sectors, and market fundamentals remain strong. Vacancies may increase slightly due to the new supply in 2021 but there will continue to be robust demand. Buildings in the 50k sf -100k sf range will see a large share of the activity in the coming quarters, as many of the larger blocks of spaces were leased last year.

• Rent growth will remain competitive, and market pricing for investors should remain on stable footing. As land prices are posting at record highs in the nearby Los Angeles market, investors and owners may see opportunity for lower priced investments in the highly dynamic San Diego market.

MARKET HIGHLIGHTS

• Rental Rates reached a record high of $1.23/SF NNN

• Sales Transaction volume increased YOY to 2 msf

• Vacancy Rates fell 30 basis points YOY to 5.3%


Source: CoStar, EDD, SD Business Journal





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