CORFAC News

By Randy La Chance, SIOR, Senior Vice President, and Jerry J. Holdner, Jr., Vice President of Market Research with Voit Real Estate Services/CORFAC International

San Diego, CA (January 15, 2015) – When Ballast Point Brewery leased more than 100,000 square feet in the Miramar submarket late in 2013 for a new brewery and tasting room, it solidified a trend that defined San Diego’s industrial market recovery that year – microbreweries were clearly the drivers for industrial space absorption.

San Diego is home to over 80 microbreweries, some of which occupy only a few thousand square feet, yet many of them have taken up larger digs in industrial buildings, where they don’t just make beer for kegs and tastings, but have opened bottling operations and distribution centers. Ale Smith Brewing Company was another beer maker that took +100,000 square feet, also in Miramar, at the end of 2013.

These are significant transactions for a region in which the average warehouse deal is well under 20,000 square feet and in a place that is primarily made up of small businesses (some 70% of local companies have fewer than 20 employees). Further, we live in a ‘cul-de-sac’ community that is hemmed in by the ocean to the west, Mexico to the south and the desert to the east. It limits the demand for big industrial facilities that are more typical in the counties north of San Diego.

While 2013 may have been the year of the brewski, 2014 was all about a healthy and steady economic recovery. And the data demonstrates these trends accordingly, beginning with jobs.

From November 2013 to November 2014, 43,600 new jobs were added to the county’s roster of employed people, according to Beacon Economics LLC and California’s Employment Development Department. Of those, approximately 3,700 were in manufacturing and 3,100 were in construction – two of the categories that drive industrial real estate occupancy more than others.

The positive employment figures dropped San Diego’s unemployment rate to 5.8% from a high of 10.7% at the peak of the recession in early 2010.

The San Diego industrial market posted 2,417,433 square feet of positive net absorption in 2014, the greatest positive annual net absorption total of the past eight years, giving the market 7.3 million square feet of positive absorption since the first quarter of 2010.

Vacancy rates reflected the positive absorption, with direct/sublease space (unoccupied) finishing the year at 5.56%. The industrial market in San Diego County has dipped well below 6% and is now lower than the best number posted in the last period of economic expansion. The East County posted the lowest vacancy rates of San Diego County areas, at 2.98%.

Rental rates, not surprisingly, followed suit. The average asking triple-net lease rate checked in at $0.69 per square foot per month, a two-cent increase from the previous year and four cents, or 6% increase over 2012’s figure.
The increased activity with greater occupancy and modest increases in rental rates have generated some conversations within the development community of building new product speculatively, but we think the tightening trend is going to have to continue for a few quarters before anyone pulls the trigger on a spec project.

Looking ahead, job growth is expected to continue in 2015, albeit as a slower pace with perhaps a net gain of 33,600 jobs, according to the Los Angeles County Economic Development Corporation (LAEDC). With more people working and more discretionary spending possible by consumers at the retail level, the industrial vacancy rate is likely to decline further over the next few quarters, dropping 50 basis points to around 5% by the end of the third quarter, while rental rates should increase by 2% to 4% over the course of 2015.

About CORFAC International
CORFAC International (Corporate Facility Advisors) is comprised of privately held entrepreneurial firms with expertise in office, industrial and retail real estate leasing and investment sales, multifamily property acquisitions and dispositions, property management and corporate services. In association with global affiliates, CORFAC International offers commercial real estate services with market reach in 48 countries worldwide. Founded in 1989, CORFAC firms completed more than 10,000 lease and sales transactions totaling approximately 400 million square feet of space valued in excess of $7.4 billion in 2014. For more information on the CORFAC network, call 224.257.4400 or visit www.corfac.com.