July 17, 2017— Colliers International San Diego Region’s just-released Q2 Industrial Report shows that demands remains strong in a tight market.
Vacancy is expected to remain at or below 5% for the second half of 2017. Even with new construction reaching a ten-year high level, historically low vacancy rates will continue to prevail. Overall rental rates will steadily rise as continued low vacancy and higher priced newly completed inventory come to market.
Countywide combined industrial/R&D vacancy dipped to 4.8% – a 29 basis point (bps) decrease from the prior quarter. More than half of the submarkets countywide posted vacancy below 4%. Conversely, only Campus Point/Eastgate (22%) posted a double-digit vacancy rate. Campus Point/Eastgate vacancy is entirely comprised of R&D space, but positive demand even caused this submarket to see slight improvement during the quarter.
All submarkets continue to remain under 9% vacancy rates for their industrial, non-R&D, inventories. Total vacancy of 3.7% for industrial space decreased 8 bps at the end of Q2 2017 compared to the prior quarter. Countywide R&D vacancy decreased by 84 bps to 7.8%.
Combined industrial/R&D net absorption totaled 546,504 SF countywide in Q2 2017. Industrial buildings (manufacturing, warehouse, distribution and multi-tenant/incubator uses) and R&D buildings (flex, wet lab and R&D uses) posted positive net absorption in of 106,672 SF and 439,832
Demand was positive in most submarkets in the quarter, with the most recorded net absorption in Rancho Bernardo (+208,995 SF). Additionally, Vista (+119,749 SF) and Sorrento Mesa (+100,009 SF) round out the top three submarkets. Poway posted strong absorption (+77,712 SF) to help improve upon the large block of space vacated by Cohu last quarter.
In Rancho Bernardo, Northrop Grumman occupied 222,509 SF at one building in Summit Rancho Bernardo. In Vista, PODS occupied 43,186 SF at 2450 Business Park Dr. Sorrento Mesa absorption was bolstered in part, by Covance occupying sublease space (+29,358 SF) at 4921 Director’s Pl. and Applied Physical Sciences (+10,022 SF) moving into 6790 Flanders Dr. Poway was boosted by a 52,156 SF owner/user sale of 14145 Danielson St. to General Atomics.
Sorrento Valley (-47,122 SF) posted the most negative net absorption of the submarkets. Sorrento Valley’s negative absorption was comprised of several smaller multi-tenant vacancies.
No new construction was completed in Q2 2017. There was an additional 598,583 SF under construction of which 281,563 SF will be completed by year-end. Badiee Development’s 55,573 SF Carlsbad Victory Industrial Park will be completed in Q3. Murphy Development will finish the 79,050 SF Building 17 of Siempre Viva Business Park in Otay Mesa. Techbilt Companies will complete a 64,300 SF building in Carlsbad Oaks East Business Park and an 82,640 SF building in Poway Corporate Center. Leasing for both of Techbilt’s projects is being handled by Ted Cuthbert of Colliers