The industrial vacancy rate was recorded at 6.61%, up from a year ago’s figure of 6.16%. This lack of supply is creating a lot of constrained demand for industrial space in the San Diego County area and is putting upward pressure on lease rates.
The average asking triple net lease rate per month per square foot in San Diego County is 75 cents, an increase of 5.6% compared to last year, and a new record high. Rental rates are expected to increase 5% to 7% in 2007.
There was 201,850 square feet of absorption during the second quarter, giving the San Diego industrial market a total of 106,569 square feet of negative net absorption for the first half of the year.
Unemployment in the second quarter was 4.2%, about the same from the first quarter, and 0.05% higher than it was a year ago.
There was 974,554 square feet of industrial construction under way with total construction down almost 50% compared to a year ago.
Planned industrial construction in San Diego County is up compared to last year, with 3.75 million square feet on the slate.
Office Market
Portfolio sales of office buildings are a trend this year. Earlier this year, Equity Office Properties Trust sold its entire portfolio of office buildings,at the time the largest portfolio in the U.S.,to Blackstone Group LP.
In the second quarter, Blackstone Group sold a small portion of them, 17 office properties in San Diego, to The Irvine Company. The deal was valued at more than $1 billion and included 2.1 million square feet.
The average asking full service gross lease rate per month per square foot was $2.69 in the second quarter, a 2.3% increase from a year earlier, and equal to the first quarter’s record high rate.
The office vacancy rate is at 11.6%, a 16.9% increase over last year’s second quarter rate of 9.9%. However, the vacancy still is low enough to push construction activity and put upward pressure on lease rates.
Office absorption checked in at positive 576,679 square feet for the second quarter, giving the San Diego office market a total of 903,010 square feet of positive absorption for the first half of 2007.
There was 4.13 million square feet of office construction under way, nearly the same from a year ago.
Planned office construction in San Diego County was up compared to last year. There was 10.76 million square feet of office space on the slate as being planned, in the second quarter, versus last year’s figure of 9.24 million square feet.
Rental rates are expected to continue to increase at moderate levels in the short run. Concessions should begin to increase in the short run in the form of limited free rent, as new space is delivered.
These conditions will put upward pressure on lease rates going forward. We should see rental rate growth of 3% to 5% in 2007.
Retail
The retail vacancy rate was at a low 2.8%, down from 3% a year earlier.
The average asking triple net lease rate rose to $2.05 per square foot per month in the second quarter.
There was 89,408 square feet of net absorption in the second quarter, giving the retail market more than 1.2 million square feet of absorption for the first half of 2007.
There was 915,999 square feet of retail construction under way, and total construction was lower than the 2.67 million square feet that was under construction at this same time last year.
Planned retail construction in San Diego County was down. There was 3.72 million square feet of retail space on the slate planned compared to last year’s figure of 4.43 million square feet.
Rental rates are expected to continue to increase at moderate levels in the short run, and concessions will lessen as the economy in San Diego continues to expand.
These conditions will put upward pressure on lease rates going forward. We should see rental rate growth of 5% to 7% this year.
Data and analysis by Jerry Holdner, vice president of market research at Voit Commercial Brokerage LP.
