SAN DIEGO—San Diego's Q2 rebound in industrial absorption can be attributed to large life-science lease transactions and increased warehouse-distribution activity in certain submarkets, CBRE's industrial and logistics expert Sean Williams tells GlobeSt.com. According to a recent report from the firm, after two consecutive quarters of negative net absorption, the industrial market rebounded as 349,745 square feet was absorbed in Q2 2017. Year-to-date net absorption is near even at 24,989 square feet.

The report also shows that over the previous two quarters, the overall industrial rate softened as large available spaces were vacated; however, that trend turned in Q2 as the rate decreased 10 basis points to 4.7%. Average asking rates for high-finish product increased quarter-over-quarter by $0.02 to $1.39 triple net lease, and low-finish product experienced a small rate decrease of $0.01 to $0.85 NNN, but remained near the post-recession high of $0.86 set in Q1 2017.

We spoke with Williams about the bounce-back in industrial absorption after two weak quarters and whether he sees this trend continuing.

GlobeSt.com: To what do you attribute the bounce-back in San Diego's industrial absorption in Q2?

Williams: The Q2 rebound in absorption can be attributed to large lease transactions in the life-science sector in Central San Diego County, specifically the UTC submarket, and increased warehouse-distribution activity, mainly in South San Diego County.

Countywide, the new deal activity was dominated by the 20,000-square-foot to 60,000-square-foot segment; 60% of new lease transactions were completed within this range in Q2. The 10,000-square-foot to 19,999-square-foot segment saw the second-largest deal volume, which mirrors historical activity, since this is the “bread-and-butter” industrial size segment for the county.

GlobeSt.com: Do you see this trend of increased absorption continuing in Q3?

Williams: We anticipate absorption to increase moderately through Q3 until the end of the year. Currently, we are tracking 8.4 million square feet of industrial requirements in Central San Diego alone, with the majority of the demand being 40,000 square feet and under. In other words, the demand supports further positive absorption. The limiting factor will be supply of available space, especially for well-located, good-image and functional product.

GlobeSt.com: How is industrial development doing in terms of keeping up with some of the demand for this space here?

Williams: This cycle is different compared to previous cycles because new construction has not saturated the market to a point where it inundates the demand. In North County, the projects under construction by RAF Pacifica, Ryan Cos., Murphy and others should be well timed and are expected to see a lot of interest. I think the broader concern we are seeing is related to development; with the high cost of construction, developers need to justify their investment by ensuring premium rents.

GlobeSt.com: What else should our readers take away from your report? (She is referring to the MarketView)

Williams: Overall, San Diego is a sustainable and healthy industrial market. The evolution of e-commerce, high volume of construction, continued population growth and diverse economy (life science, technology and defense) will continue to be industrial drivers for the foreseeable future.

SAN DIEGO—San Diego's Q2 rebound in industrial absorption can be attributed to large life-science lease transactions and increased warehouse-distribution activity in certain submarkets, CBRE's industrial and logistics expert Sean Williams tells GlobeSt.com. According to a recent report from the firm, after two consecutive quarters of negative net absorption, the industrial market rebounded as 349,745 square feet was absorbed in Q2 2017. Year-to-date net absorption is near even at 24,989 square feet.

The report also shows that over the previous two quarters, the overall industrial rate softened as large available spaces were vacated; however, that trend turned in Q2 as the rate decreased 10 basis points to 4.7%. Average asking rates for high-finish product increased quarter-over-quarter by $0.02 to $1.39 triple net lease, and low-finish product experienced a small rate decrease of $0.01 to $0.85 NNN, but remained near the post-recession high of $0.86 set in Q1 2017.

We spoke with Williams about the bounce-back in industrial absorption after two weak quarters and whether he sees this trend continuing.

GlobeSt.com: To what do you attribute the bounce-back in San Diego's industrial absorption in Q2?

Williams: The Q2 rebound in absorption can be attributed to large lease transactions in the life-science sector in Central San Diego County, specifically the UTC submarket, and increased warehouse-distribution activity, mainly in South San Diego County.

Countywide, the new deal activity was dominated by the 20,000-square-foot to 60,000-square-foot segment; 60% of new lease transactions were completed within this range in Q2. The 10,000-square-foot to 19,999-square-foot segment saw the second-largest deal volume, which mirrors historical activity, since this is the “bread-and-butter” industrial size segment for the county.

GlobeSt.com: Do you see this trend of increased absorption continuing in Q3?

Williams: We anticipate absorption to increase moderately through Q3 until the end of the year. Currently, we are tracking 8.4 million square feet of industrial requirements in Central San Diego alone, with the majority of the demand being 40,000 square feet and under. In other words, the demand supports further positive absorption. The limiting factor will be supply of available space, especially for well-located, good-image and functional product.

GlobeSt.com: How is industrial development doing in terms of keeping up with some of the demand for this space here?

Williams: This cycle is different compared to previous cycles because new construction has not saturated the market to a point where it inundates the demand. In North County, the projects under construction by RAF Pacifica, Ryan Cos., Murphy and others should be well timed and are expected to see a lot of interest. I think the broader concern we are seeing is related to development; with the high cost of construction, developers need to justify their investment by ensuring premium rents.

GlobeSt.com: What else should our readers take away from your report? (She is referring to the MarketView)

Williams: Overall, San Diego is a sustainable and healthy industrial market. The evolution of e-commerce, high volume of construction, continued population growth and diverse economy (life science, technology and defense) will continue to be industrial drivers for the foreseeable future.