He adds that in San Diego "R&D is saving the day," and "in industrial, over the last 10 years we've seen a strong transition from light-industrial to a life sciences and medical sciences R&D flex users."

Some of the local entrepreneurial companies continue to expand and take space, Hohenstein says, adding, "San Diego is very well-known for some of the smaller startup firms." UCSD's science programs graduate several PhDs each year with start-up aspirations bent on staying in the San Diego area, Hohenstein adds.

The largest lease of the second quarter was the Paradigm Group, which signed a five-year, $4.5 million lease for 124,000 sf in the Siempre Viva Business Park in Otay Mesa.The emergence of short-term lease commitments as an alternative strategy for landlords to generate cash flow and offset operating expenses has helped to offset downsizing and lower demand for space, the report states.

In Downtown San Diego, buildings owned and previously occupied by Jerome's Furniture are also being leased on a month-to-month basis. These buildings will eventually be sold for residential redevelopment since downtown land prices are now too high to support industrial use.

Over-building has left a few spots, like the Oceanside and Carlsbad markets in the north and to the south the Otay Mesa market, the weakest of the San Diego area markets, according to the report. "Those areas had a lot of new development and were also some of the hardest hit by the residential slowdown," he says.