San Diego Industrial Vacancy Dips to Pre-Recession Low of 7.6%

Cassidy Turley First Quarter Report Projects Return of Landlord’s Market

Published on April 16, 2014

SAN DIEGO –  Cassidy Turley, a leading commercial real estate services provider in the U.S., has released its first quarter San Diego report showing that countywide industrial vacancy has dropped to the pre-recession low of 7.6%, marking the early stages of a landlord’s market that will be boosted by improving demand and little if any new construction.

“The San Diego County industrial market has absorbed 7.1 million square feet since mid-year 2010, not only recovering more than 4.2 million square feet vacated by tenants in 2009, the worst year of the recession, but absorbing an additional 2.9 million square feet of inventory,” said Bryce Aberg, Managing Director  with Cassidy Turley’s San Diego office. “The gradually improving economy and higher tenant confidence have generated 11 consecutive quarters of declining vacancy and a much welcome return to pre-recession numbers.”

The Cassidy Turley study shows 372,689 square feet of positive net absorption for the first quarter of 2014. This compares favorably to 317,952 square feet absorbed the same time a year ago, and to 314,850 square feet absorbed in the first quarter of 2012. Vacancy across all industrial product types has decreased, from 12.7% at year-end 2009 to 9.2% as of March 31, 2013, and to 7.6% today.

“Fifteen of the county’s 25 industrial submarkets are showing marked improvement in vacancy,” said Mr. Aberg. “While some areas are still sluggish, most are more stable than they have been in years.”

The county’s best performing submarkets in the first quarter were Carlsbad, Otay Mesa, Miramar, Carmel Mountain Ranch and Sorrento Valley. All recorded positive net absorption between 34,000 and 173,000 square feet and, combined, recorded 486,000 square feet of activity. The largest move-in of the quarter was AleSmith Brewing Company’s occupancy of 105,636 square feet in Miramar.

“This sizable expansion by AleSmith reflects the tremendous growth of the San Diego craft brewing industry,” said Glenn Arnold, Senior Managing Director with Cassidy Turley’s San Diego office. 

Mr. Arnold, who represented AleSmith in its lease in Miramar Distribution Center, noted that other brewers such as Ballast Point have made significant moves in the market to keep up with the growing popularity of locally crafted beers. Ballast Point recently signed a lease to relocate to 107,000 square feet in an H.G. Fenton Company-owned building also in Miramar. The company’s new location, which includes a tasting room and restaurant, will begin brewery operations in summer 2014 with a public opening to follow late in the year.

Evaluating vacancy by product type, Cassidy Turley research shows that R&D vacancy of 8.9% is down from 11% the same time a year ago; incubator multi-tenant (IMT) vacancy is down from 9% to 7.2%; and distribution vacancy has slipped from 8.9% a year ago to 7.3%. Manufacturing has the lowest vacancy of all types, currently 6.4% compared to 5.7% the same time last year.

“Available inventory is declining, and with few new projects on the horizon, landlords are back in the driver’s seat,” said Mr. Aberg.  “Vacancy below 10% reflects healthy supply and demand balance.  The lower vacancy dips, the more the pendulum swings to a landlord-driven market. Generally, owners and developers are still cautious where speculative development is concerned. The limited available land supply is yet another barrier to any potential overbuilding.”

The Cassidy Turley report shows that in the first quarter of 2014, just two industrial projects were under construction in San Diego County. The 156,421-square-foot build-to-suit project located at 2450 Business Park Dr. in Vista is 72% preleased to Applied Membranes, with an anticipated second quarter completion date. Additionally, the 115,000-square-foot project located at 14105 Kirkham Way in Poway is fully preleased by General Atomics with an anticipated move-in date of August 2014.

While the supply of industrial space is tightening, rental rates have been stable for the past 16 quarters, ranging between 78 and 81 cents per square foot triple net (NNN). As of March 31, 2014, the averaging asking rent was 80 cents per square foot NNN.

“With healthy absorption and declining vacancy expected for the foreseeable future, we should see rent growth in the most stable markets and among the healthiest product types,” said Mr. Arnold.  “While not all landlords can raise rents yet, most have been tightening concessions since late 2012.”

Both Mr. Aberg and Mr. Arnold note that employment is the key driver of commercial real estate performance. With the national unemployment rate now standing at 6.7% and the San Diego unemployment rate at 7%, the outlook has improved. In 2014, all local employment sectors are projected to grow by 2%, or 25,120 new jobs, with unemployment slipping to 6.6%.  

“Tenants in the market are looking for 5.7 million square feet of space over the next 24 months with 2 million square feet in the central and south county areas combined,” said Jolanta Campion, Director of Research with the San Diego office of Cassidy Turley. “While not all of these tenants will transact in the short-term, leasing activity will strengthen, led by the manufacturing, transportation, warehousing and utilities sectors.”

“Manufacturing is a key driver of industrial real estate performance, and we’ve seen expansion in this segment for 10 months straight,” Ms. Campion said. “Of 18 manufacturing industries, 14 reported growth in March 2014, according to the Institute for Supply Management. As the national and local economies improve, the San Diego industrial market is bound to benefit.”

About Cassidy Turley

Cassidy Turley is a leading commercial real estate services provider with more than 4,000 professionals in more than 60 offices nationwide. With headquarters in Washington, DC, the company represents a wide range of clients—from small businesses to Fortune 500 companies, from local non-profits to major institutions. The firm completed transactions valued at $25.8 billion in 2013, manages approximately 400 million square feet on behalf of institutional, corporate and private clients and supports more than 24,000 domestic corporate services locations. Cassidy Turley serves owners, investors and tenants with a full spectrum of integrated commercial real estate services—including capital markets, tenant representation, corporate services, project leasing, property management, project and development services, and research and consulting. Cassidy Turley enhances its global service delivery outside North America through a partnership with GVA, giving clients access to commercial real estate professionals in 65 international markets. Please visit for more information about Cassidy Turley.


Sandra Grove

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