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2020 Q3 Industrial San Diego Region

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Industrial market remains stable during the economic slowdown

Behind the Numbers

  • Countywide vacancy of 5.9% increased slightly and registered 337,527 SF of positive net absorption. 776,099 SF of new construction was completed of which 91% was preleased and occupied.
  • More than 3.1 million SF is currently under construction, including more than 2.6 million SF already preleased by Amazon in Otay Mesa.
  • Countywide average asking NNN rental rate increased by $0.01/SF in Q3 to reach an all-time high of $1.30/SF/month - a 7.4% increase year-over-year. Rents in industrial space increased by 1.0% ($1.01/SF), whereas R&D space increased by 18.2% ($1.30/SF).

Net Absorption

Industrial buildings (manufacturing, warehouse, distribution and multitenant/incubator uses) posted 558,317 SF of positive net absorption and R&D buildings (flex, wet lab and R&D uses) posted negative net absorption of 220,790 SF, for a combined industrial/R&D positive net absorption of 337,527 SF in Q3. Year-to-date net absorption has been relatively flat, totaling a negative 96,871 SF.

The largest move-ins during Q3 were Amazon’s occupancy of 533,950 SF at the two-building Vantage Point project in Poway and the 141,518 SF RB Vista project in Rancho Bernardo, both completed in Q3. JF Hillebrand moved into 141,518 SF at 2065 Sanyo Ave in Otay Mesa, a building that was built earlier this year. Wawanesa Insurance occupied the 75,000 SF flex building at 7650 Mission Valley Rd in Mission Valley. Lowes Home Improvement Warehouse occupied 65,510 SF in Carlsbad at 2800 Whiptail Loop.

The largest move-outs included Direct Electronics’ vacancy of 202,844 SF at 1 Viper Way in Vista. Triumph Fabrications put 110,663 SF of sublease space on the market at 1111 Pioneer Way in El Cajon and Cubework shed 81,928 SF of sublease space at 1395 Aspen Way in Vista.


Countywide combined industrial/R&D vacancy stood at 5.9% at the end of Q3 - a 20-basis point (BPS) increase from the prior quarter. Direct vacancy made up 5.3% (+3 BPS) of the inventory, while sublease vacancy stood at 0.6% (+17 BPS). Vacancy in the industrial inventory increased by 13 basis points to 4.7% and the R&D inventory increased by 41 basis points to 8.9%.

10 out of San Diego County’s 21 submarkets posted vacancy less than 5% and only Sorrento Valley (13.1%), Sorrento Mesa (13.0%), Carlsbad (10.6%) and Vista (10.1%) posted double-digit rates. 

Sublease vacancy has been slowly rising, as evident by the 17 BPS increase from 0.4% in Q2 to 0.6% in Q3. It was driven by a 332,455 SF increase in vacant sublease space, bringing it to a total of 1.11 million SF – the first time it has been greater than 1 million SF in seven years. But this level of sublease vacant space is still relatively low historically.

For the nearly 13-year period from Q1 2001 through Q3 2013, the sublease vacant space exceeded 1 million SF every quarter, averaging 2.46 million SF per quarter. In fact, since Q4 2013, it has been less than 1 million SF every quarter except for Q1 2019 (1.06 million SF). Over the past two decades, sublease vacant space has averaged 1.85 million SF. 

New Supply

Four buildings were completed in Q3 totaling 776,099 SF. This included the previously noted three buildings Amazon occupied in the I-15 Corridor as well as the 100,631 SF Vogt Industrial Park at 9505 Airway Rd in Otay Mesa.

There are currently six projects totaling 3.13 million SF under construction countywide. By year-end, an additional 400,750 SF will be completed. The remaining 2.72 million SF will be completed next year, making 2021 the most active year for new industrial construction since 2007.

The largest project under construction includes 2.6 million SF building being developed by Seefried Properties for Amazon in Otay Mesa. The e-commerce giant will be occupying nearly 4 million SF countywide in 2020 and 2021 in new construction. Amazon’s total presence countywide will reach just less than 5 million SF, making it the region’s largest corporate tenant. 

Additional large-scale projects include the three-building 227,268 SF Majestic Sunroad Center, a joint venture between Sunroad Enterprises and Majestic Realty, also being built in Otay Mesa and the three-building 198,302 SF life science campus in Torrey Pines called The Boardwalk.

Trends and Outlook

Relative to other property types such as office and retail, the industrial and R&D market sector has not been as adversely affected by the COVID pandemic fueled recession. Growing industries such defense, life science and e-commerce have benefited from demand in San Diego County, which has a strong base in these sectors. 

The relative strength of San Diego industrial and R&D base is one of the primary reasons asking rental rates continue experience increasing growth and are expected to continue to do so for the foreseeable future. A shrinking supply of industrially zoned raw land is placing a constraint on future ground-up development, which puts additional upward pressure on rents.

Because of the a growing demand for life science space, many of the North City submarkets such as Sorrento Mesa, Sorrento Valley, Torrey Pines and Campus Point are seeing a trend toward converting low-rise office space into life science space to keep the accelerating growth in the sector.

Additionally, an opportunity for as much as 1.3 million SF of new life science space to be constructed in Downtown San Diego has become available through an acquisition by IQHQ REIT of the former Manchester Pacific Gateway mixed-use project. The project – The San Diego Research and Development District (RaDD) – has the potential to create for the first- time a brand-new life-science cluster outside of San Diego Golden Triangle and the North City. The new project replaces the previous plans by Manchester Financial Group for over 1.5 million SF of Class A office space. In UTC, Alexandria is partnering with Regency Centers to renovate the Costa Verde Shopping Center into a mixed-use shopping center with an additional 400,000 SF of tech/R&D space. Construction on this new Costa Verde Life Science Campus is expected to break ground by mid-next year.

While the aforementioned industries remain very strong in San Diego, across the board demand has been slightly negative. At the current rate of absorption and construction activity, this year could be the first time San Diego County has ended its year with negative industrial and R&D absorption since 2009. If the year does end with overall negative
demand, it will not likely be too extreme, possibly pushing vacancy around the low-6% range.


2020 Q3 Industrial San Diego Region

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