San Diego
JLL is expanding its industrial practice in San Diego in response to the roaring market activity. Greg Lewis and Ryan Spradling have joined the firm as EVPs and will focus representing institutional landlords and tenants.
"The primary goal in forming this team was to create a unique offering for our valued Industrial clients in San Diego," Lewis tells GlobeSt.com. "San Diego is a market that is shrinking meaning that occupiers and investors must consider options throughout the county based on conditions that continue to tighten. By combining three seasoned Industrial brokers with individual geographic expertise spread throughout the county we can now deliver a one stop shop for all things large scale Industrial in San Diego. This is all about maximizing coverage and providing the best information to make confident real estate decisions. Pair this approach with JLL's global platform of resources including the recent acquisition of HFF and you have a winning formula that produces exceptional outcomes."
Strong new construction activity hasn't seemed to outpace demand in the San Diego market, keeping the vacancy rate at record low rates. "San Diego has had nearly 5 million square feet of construction deliveries since the beginning of 2016 including 1.8 million in 2018 alone," says Lewis. "Currently we are tracking 1.2 million of low finish construction throughout the county. The vast majority of this development has been in the form of warehouse and distribution product fueled by record levels of absorption and skyrocketing lease rates, which have now surpassed $1.00 per square foot, triple net on the average ask. Robust demand has kept pace with supply as evidenced by a very healthy 4.6% overall vacancy rate which has remained relatively flat in recent years despite the wave of new construction."
Economic growth—driven largely by consumer spending—and the ecommerce phenomenon are behind the industrial activity. "San Diego is the fifth most populous county in the US and many of the largest online retailers have taken note by establishing last mile facilities to meet increasing consumer demand," says Lewis. "Online sales remain a small percentage of overall retail spending and we expect demand for warehouse space to steadily increase as more and more transactions occur remotely. Put simply, Industrial is the new retail as more and more brick and mortar stores are shuttered in favor of regional and local distribution locations."
Of course, this isn't a new story. The industrial growth has been the highlight shift this business cycle, particularly for real estate investors. Now, it is attracting institutional investors to San Diego, and driving the motivation for the firm's industrial expansion. "On the investment side we have seen an influx of Institutional landlords and developers as San Diego offers better yields and is now viewed as an extension of their Southern California Industrial portfolios," says Lewis.
In 2020, Lewis expects institutional landlords and tenants to become major players in San Diego. "We expect to see more occupiers with strong credit enter our market based on the aforementioned demographics and a continuation of North/South migration patterns as supply constraints and functional obsolescence push larger users out of Central San Diego," he says. "Any new construction starts will be primarily concentrated in South County as supply of deliverable land sites in Central and North County continues to dwindle. Rental rates should continue to increase but at a slightly slower pace and investment sales pricing will remain strong as industrial remains the preferred asset class."
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Kelsi Maree Borland
