San Diego Industrial Sales Down 50% for the Year

San Diego industrial investment activity has fallen significantly for the year as a result of the pandemic. According to research from JLL, industrial investment activity is down 50% for the year, despite a rebound in investor appetite during the third quarter.

“Despite a nice bounce back in the third quarter sales activity, year-to-date sales volume in 2020 is down 50% from 2019. Much this can be attributed to a temporary pause during the early stages of the pandemic,” Greg Lewis, EVP at JLL, tells GlobeSt.com. “Investors were understandably hesitant to commit to valuations and required more clarity before getting back into acquisition mode. These concerns were quickly assuaged once it became evident that there was no dip in lease rates or demand for industrial.”

While investment activity for the year remains well below 2019 sales volumes, other metrics have showed signs of improvement. Pricing on assets, for example, is currently at pre-pandemic levels and growing. “Investor and owner user pricing quickly returned to pre-COVID numbers, and in some cases, it is now exceeding those levels from both a price per square foot and cap rate perspective,” says Lewis.

Thanks in large part to a boom in the ecommerce market segment, industrial assets are also poised to recover rapidly. This is likely the reason there hasn’t been a decrease in asset pricing. “Investor appetite for industrial product remains white hot in San Diego as buyers have fully adopted San Diego as an extension of their Southern California portfolio and a lot of opportunity in terms of greater yields compared to markets like Los Angeles and the Inland Empire,” says Lewis.

The dearth available industrial acquisition opportunities are more likely responsible for the decline in transaction volume than investor appetite. “Biggest challenge facing investors in San Diego is the lack of sale offerings,” says Lewis. “Most of the institutional buyers in the region are net buyers and committed to amassing larger portfolios.  Future opportunities will likely come from off market transactions, corporate sale-leasebacks, and assets that are bundled as part of multi-market dispositions.”

Despite the decline in transaction activity, there have been two major sales in Otay Mesa this year totaling 1 million square feet and $165 million. These two deals will help buoy transaction numbers this year.