The Forecast for North County Industrial

Roth: “Unless the owner has a low basis on the land, it may not make sense to develop since the sale price will not justify the construction.”

SAN DIEGO—There’s room for growth on lease and sale prices, with little to no options for tenants and users, creating a robust industrial market in the North County submarket of San Diego, Lee & Associates ‘ Chris Roth tells GlobeSt.com. While obviously nobody has a crystal ball, since his specialty is leasing and selling industrial real estate in North County, Roth says he can make educated guesses about the forecast for this market. He tells these exclusively to GlobeSt.com, below. GlobeSt.com: Taking the economy out of the picture, where do we stand today with the North County industrial market? Roth: As of February 23 ^rd , North County San Diego (Carlsbad, Vista, Oceanside, Escondido and San Marcos) had a vacancy rate hovering around 5%. That’s more than a 50% decrease since 2009. Submarkets like Escondido are under 2%, and Vista is less than 2.5%. Lease rates have been steadily increasing since approximately 2013. When looking back at where we hit bottom and where we were at the market peak in 2008, we are only halfway up the hill. In other words, there is still plenty of room for rent growth.

Vacancy rates, after dropping dramatically beginning in 2012, are hovering at around 5%.

There’s still runway in the leasing category.

GlobeSt.com: What about sale prices? Roth: Sale prices have increased rapidly since the bottom of the market in 2010 to 2012. As you can see from the graph, we are approaching peak pricing levels, but have yet to reach the top.

Sale prices are approaching peak levels, but are not yet at the top.

GlobeSt.com: What’s happening with construction? Roth: North County has a few projects that are currently under construction, mainly in Carlsbad and Oceanside. We are seeing extremely limited construction in cities like Vista, San Marcos and Escondido. The cities have also made it very difficult in order for a new project to receive a green light. Government rules and regulations regarding energy and storm-water retention have increased the costs and construction timelines for developers . In addition, unless the owner has a low basis on the land, it may not make sense to develop since the sale price will not justify the construction. GlobeSt.com: So, what are your conclusions? Roth: When looking at these four factors, what I see is room for growth on lease and sale prices with little to no options for tenants and users. With limited construction coming down the line and the cost and time it takes to develop, it doesn’t appear vacancy rates will change in the near future. If we eliminated the world economy from our predictions of the future, which I know is not realistic, we can see real estate values should continue to rise and vacancy rates should continue to remain constant. As I mentioned above, it is not realistic to take the economy out of the equation. There are concerns of another recession due to a number of factors—for instance, how poorly is the Chinese economy doing and will it drive a world recession? How will oil’s continued price depreciation affect us? The stock market has clearly been a roller coaster as of late. When it comes to how the economy will react or where we will be in six to 12 months in regard to these issues, I’m not sure anybody really knows; hence, the reason I wanted to focus on the real estate fundamentals and remove economics from the analysis.