“All things industrial have seen a tremendous amount of activity across the board in all subsectors,” said Brant Aberg, executive director of the commercial real estate brokerage Cushman & Wakefield.
Aberg said there’s been more activity in 2021 than there was in 2019 prior to the pandemic.
CBRE commercial real estate brokerage reported that the San Diego industrial market in the second quarter of 2021 “had arguably the strongest quarter on record.”
Net absorption – a measure of how much space was newly occupied – topped 1.7 million square feet in the second quarter, the highest it’s been since 2004, according to CBRE.
Healthy Signs
The vacancy rate among industrial buildings dropped dramatically in the second quarter, falling to 3.4% – the lowest on record according to CBRE.
Leasing activity for the quarter topped 4.5 million square feet – not a record but the highest it’s been since the third quarter, CBRE reported.
Newmark, another commercial real estate brokerage, reported a slightly higher vacancy rate in the second quarter than CBRE – 4.5% – but like CBRE, Newmark reported that the continuing downward trend in vacancies bodes well for a strong finish to the year.
Newmark said the declining vacancy rate was “reflecting healthy move-in activity throughout the county amid sustained demand for distribution and warehousing space.”
“Although there is a historical high level of construction activity, new projects have not yet started to deliver at a pace sufficient to meet surging demand for industrial space,” according to Newmark. “San Diego is in very good condition as the economy recovers from the pandemic. Demand for industrial space only increased while other businesses were forced to shut down, and the fortuitous time of construction projects that are approaching completion means that new product will be coming on line while demand is still growing.
Looking South
South County and Otay Mesa in particular are the focus of much of the industrial activity, although Aberg of Cushman & Wakefield said that North County – the hotspot of San Diego’s industrial market a few years ago – saw considerable activity in the second quarter.
“A lot of that was driven by what was available at the time,” Aberg said, but there’s little land left in North County for new industrial projects and most of what’s been built has been taken.
Aberg said about 1 million square feet of developable land is left in North County.
“That will be the extent of developable land in North County,” Aberg said.
“Central County doesn’t have any developable land.”
The story in historically strong industrial submarkets such as Kearny Mesa and Mira Mesa is one of redevelopment – razing older buildings to make away for newer product or renovating existing buildings.
Henceforth, Aberg said “The market’s going to be largely driven by South County developments, South County particularly being Otay Mesa,” Aberg said.
About 800,000 square feet of new industrial product is expected to come online by the end of 2021 in Otay Mesa with an additional 1.3 million square feet to be delivered in 2022, Aberg said.