San Diego Industrial Rents Are Up Nearly 5%

San Diego industrial rents continued to climb in the fourth quarter. According to market research from Marcus & Millichap, industrial rents in the market have increased 4.7% to $16.80 per square foot. Rents have grown consistently each quarter since the start of the pandemic.

Limited supply is contributing to the increase in asking rents. As rents have increased each quarter, the vacancy rate has also inched down. In the fourth quarter, San Diego had a 4.4% industrial vacancy rate, down 70 basis points from the previous quarter. The vacancy rate has been on a downward trend since 2019, when the rate peaked at nearly 6%, according to the report.

The low vacancy rate isn’t due to lack of trying. There is an industrial construction pipeline of 4.8 million square feet, which will increase the current stock by 2.9%. The pipeline has been expanding to meet the seemingly insatiable demand since last year. At the time, experts agreed that demand was continuing to exceed the construction activity, and that has panned out to be true. The pipeline mostly consists of low finish warehouse product. The activity includes two industrial projects at Brown Field Technology Park in Otay Mesa, totaling 200,000 square feet from Murphy Development.

Unsurprisingly, the strong leasing demand has spilled into strong sales trends. Industrial cap rates have compressed to 5.5% and asset pricing is averaging above $225 per square foot. This year, Black Creek Group’s acquisition of North County Corporate Center for $147.5 million from Barings was among the largest industrial deals in the market. At 493,898 square feet, NCCC is the largest pure industrial distribution center in Vista, California.

The five-building property is located in a high-image business park environment. It features 26-foot clearances, ESFR and ESFR-ready sprinkler systems, abundant dock-high loading, large truck yards and modern offices. It was 100% leased at the time of the sale to six tenants.