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7/22/22
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This report provided by real estate services firm JLL
Overview
• The San Diego industrial market is showing resilience in the face of macro-economic uncertainty.
• Large block leasing was active in Q2, with year-to-date leasing for spaces larger than 100k sf keeping pace with 2021.
• Sales volume reached 2nd highest level on record with average price per square foot 47% higher than a year ago.
• Market-wide pre-leasing remains strong, accounting for 38% of the current development and causing rents to surge
Despite macro-economic headwinds, tenant demand in the San Diego industrial market remained strong in Q2. New completions have slightly outpaced demand through the first half of the year, helping to provide some relief to over 7 msf of tenant requirements waiting for availability. The development pipeline provided a welcome boost of over 940k sf of new product completed this quarter. The largest Q2 completion was a 520k sf build-to-suit for an e-commerce company in the rapidly growing Otay Mesa submarket. Currently, there is 895k sf of industrial product slated for completion by Q4, making this one of the most active years for industrial development in San Diego’s history.
Despite extremely low availability, large block leasing is keeping pace with last year, with nine leases signed over 100k sf year-to-date. Food and beverage brand Suja Life signed a lease for 237k sf to expand within their current location in North County, representing the largest lease of the year so far. A tech manufacturer and logistics company each leased roughly half of a 175k sf flex-to-industrial conversion that delivered in North County this quarter. The building will be half occupied until Q4 but unavailable.
Following a modest first quarter of sales activity, total sales volume in Q2 was the second highest on record at $550 mil. Additionally, the average price per square foot of industrial product has risen a record 47% year-over-year to $307 p.s.f. Q2’s sales were highlighted by Link Logistics selling an eight-property North County portfolio at $321 p.s.f. and Murphy Development selling two newly minted warehouses to Hines in Otay Mesa for $336 p.s.f. In addition, lab developers are still acquiring Central County industrial properties ranging from $400-$500 p.s.f. to redevelop into biotech space, further contributing to market-wide price increases.
Outlook
The health of the San Diego industrial market remains strong, evidenced by rents which continue to set new records, rising 23% year-over-year. Tenant requirements still outpace existing and under development availabilities by a wide margin, leaving control firmly in the hands of landlords.
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