New Report Points to Tightening Industrial Market

SAN DIEGO-According to a new report published by Burnham Real Estate, the San Diego County industrial market is tightening up, with leasing activity on track to significantly surpass last year’s overall net absorption level. Activity for the second quarter has been reported as 1.1 million sf, while year-to-date net absorption totals 1.3 million sf. Burnham’s industrial experts are predicting that total net absorption for 2004 will surpass last year’s figure of 2.2 million sf. Mickey Morera, a senior vice president and industrial leasing specialist with Burnham, says activity may reach 2.7 million sf, “if projects under construction are completed on schedule.” Meanwhile, industrial vacancy currently stands at 8.6% based upon total leasable inventory, and at 6.2% when owner-occupied buildings are included, the Burnham report notes. Morera attributes the uptick in leasing activity to a variety of factors, including the overall optimistic attitude regarding the economy and the continued population growth in San Diego County. Regarding the county’s population growth, Morera says it “has created a strong demand for warehouse space to service all the people who live here now.” He tells GlobeSt.com that “some of the users that have really gobbled up space, on the warehouse side in particular, have been home improvement and home renovation and home furnishings related and that’s going to continue throughout the end of the year.” Other groups of users that are taking sizable chunks of industrial space off the market include medical device and medical services firms, moving and storage companies, and distributors of lifestyle and recreational goods. Moving forward, Morera says he sees the market “becoming extremely tight, with no ability to construct any industrial buildings in the entire Central San Diego County because of scarcity of land and extremely high land prices.” He says land prices here are pushing industrial development to “the fringes of the county.” Due to the constraint of product and continued demand, Morera believes the county will see “some significant rent spikes on the industrial side in 2005.” He says average asking rental rates could rise to as much as $0.65 to $0.85 per sf in the near future.