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1/08/25
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This report provided by real estate services firm Kidder Mathews
Market Highlights
• Quarterly Leasing Volume fell YOY and QOQ to 1.2 msf
• Asking Rental Rates fell 3.5% YOY to $1.64/sf NNN
• Cumulative Sales Volume saw a 7.3% increase to 6.5 msf compared to 2023
Market Drivers
• The San Diego industrial market experienced -368k sf of direct net absorption in 4Q24, returning to the trend of negative absorption trend that was briefly ended last quarter. Cumulatively, direct net ab-sorption was 482k sf higher than last year, but at -1.4 msf, the region is still facing a period of moderate demand.
• Total vacancy continues to reach new heights, measuring at 7.6%, a year-over-year (YOY) increase of 190 basis points (bps). Likewise, quarter-over-quarter (QOQ) vacancy grew by 50 bps
• Lease transaction volume halved YOY and QOQ totaling 1.2 msf on the quarter. Yearly totals for leasing volume reached 7.6 msf, falling short of the 9.1 msf reported in 2023
• Conversely, Industrial sales volume more than doubled QOQ, resulting in only 2.2 msf of properties trading hands. This saw a 7.3% increase in sales volume compared to last year, but on a dollar-basis, sales volume only increased by 2.8% to $1.6 bil. This decrease in price per square foot paired with the increase in volume might indicate that the recent rate cuts have allowed for more investments to be made, but the recent dip in demand for space has caused the prices to come down.
Economic Review
• The unemployment rate throughout San Diego County was 4.6% in November 2024, 30 bps higher than the year-ago estimate of 4.3%. California reported an unadjusted unemployment rate of 5.4% in the same period, a 120 bps increase YOY
• The San Diego-Carlsbad-San Marcos Metropolitan Statistical Area (MSA) industrial jobs saw some positive and negative movement this year. The Manufacturing sector reported 109.8k jobs, marking a 3.9% decrease YOY, and a 1.5% decrease since 3Q24. The Transportation and Warehouse sector increased 0.6% YOY and 3.7% QOQ to 230.5k jobs.
Near-Term Outlook
• Over 1.7 msf of new construction, concentrated primarily in south county, is slated to be delivered in the first half of 2025, further straining vacancy in that area and limiting rent growth in the near term
• As expected, the Federal Reserve cut interest rates for a third time in 2024, and they project to cut rates again two more times in 2025, with a target rate between 4.25% and 4.5%. There is still some unease in the market, but these recent and expected cuts aim to increase spending and investments which could benefit the industrial market, especially in terms of sale volume
• The Industrial market has posted negative net absorption in back-to-back years for the first time since 2008-2009. Though the market has seen a rough patch, if the past is any indication, its likely that the market will begin to swing up as the general economy continues its post pandemic recovery in 2025.
The information in this report was composed by the Kidder Mathews Research Group and provided by Kidder Mathews Director of Research Gary Baragona.
Data source: CoStar, EDD, SD Business Journal, data.bls.gov
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