Industrial Market
Driven by 4.6 million square feet of industrial sale and lease activity, second-quarter net absorption vaulted to nearly 2.8 million square feet, a 58% increase over the first-quarter figure.
For the second quarter, the average asking triple-net lease rate for industrial space increased 3 cents (a 4% gain) to 77 cents. Lease rates tended to be the highest in the central area due to the concentration of biomedical facilities in the Torrey Pines and UTC submarket, and the increasing collection of corporate headquarters and research and development facilities throughout central San Diego County.
The industrial vacancy rate in San Diego continued to decline, falling to 6.24% in the second quarter from 7.63% in the first quarter, despite nearly 2.9 million square feet of new construction entering the market.
Responding to the increased demand for new industrial product, close to 3 million square feet of industrial space were under construction at the end of the second quarter. The second-quarter volume was a 61% increase over the first quarter’s 1.8 million square feet. Two of the 22 submarkets, Otay Mesa and Poway, accounted for almost 42% (1,221,527 square feet) of the 2.9 million square feet under construction.
Office Market
Across the board, second-quarter market indicators reflected a stable office market. Vacancy rates continued to decline, lease rates continued to increase and healthy, positive net absorption continued.
Net absorption was at the highest level experienced in the past three years. Led by Carlsbad, Sorrento Mesa, Del Mar Heights and Rancho Bernardo, the San Diego County office market generated 960,623 square feet of positive net absorption in the second quarter. Second-quarter net absorption was up nearly 256,000 square feet from 705,060 square feet in the first quarter.
Driven by the voluminous net absorption, the office vacancy rate dramatically decreased to 5.6% in the second quarter. Strong demand for new office space pulled the vacancy rate down from 7.4% in the first quarter. The 12-month trend shows a 42% decrease in vacancy, from 7.9% in the second quarter of 1999.
For the quarter, the average asking full-service gross lease rate for office space in the San Diego County office market rose to $1.83 per square foot per month, the highest level since 1991, when it was $1.67. The average asking lease rate jumped 10 cents from the first quarter.
Office construction ramped up a little over a year ago. Since the beginning of 1999, approximately 2 million square feet of office space has consistently been under construction in San Diego County. Approximately 2.2 million square feet were under construction during the second quarter, down slightly from the 2.3 million square feet under construction in the first quarter, due to deliveries.
