San Diego’s industrial space market still looks promising despite an increase in the vacancy rate in the fourth quarter of 2016, according to a recent analysis by Cushman & Wakefield.
While the vacancy rate rose slightly to 5.3 percent, other indicators were robust. For instance, once again the county saw positive net absorption of industrial space in the final quarter, which continues what’s become a long-term trend.
“The industrial sector recorded 451,870 SF of positive net absorption in Q4 2016, the 22nd consecutive quarter of industrial expansion,” said Dennis Visser, managing director of Cushman & Wakefield, San Diego. “Tenants have absorbed nearly 12 million square feet (MSF) of space, 540,000 SF per quarter, during this streak.”
The vacancy rate climb was because Sweetwater Union High School District vacated 260,000 square feet in Chula Vista, and AutoGenomics gave up 126,000 square feet in Vista when it relocated to Carlsbad, the report said.
While vacancy may have risen, so did rents. "The overall average asking rent for industrial product on a triple net basis was $1.01 per square foot in Q4 2016, rising 5.2 percent from a year ago," Cushman & Wakefield reported. "The last time rents averaged $1.00 was nearly nine years ago (Q3 2008)."
New spaces are coming online, meaning developers remain confident in the market.
"We are currently tracking nine buildings totaling more than 725,000 square feet of new product under construction in Carlsbad, Vista, Poway, and Otay Mesa submarkets,” said Aric Starck, an executive managing director with Cushman & Wakefield in San Diego.
“Until recently developers have been reluctant to build without committed tenants in place. We saw this dynamic shift in late 2015 when under construction activity reached 1.2 million square feet — the highest level recorded since 2007. Currently, seven (or approximately 565,000 square feet) of the nine buildings under construction are speculative while overall preleasing activity is at 32.0 percent.”
Cushman & Wakefield predicts 2017 will see more growth in this sector. “Continued economic and job expansion strengthened further by our tenant demand tracking to the tune of 4.5 million square feet — potentially landing over the next 24 months countywide — will help fuel industrial market growth through 2017,” Visser said.
For the firm’s Snap Shot look at the quarter, click here.