Industrial Market
San Diego County’s industrial market experienced approximately 1.9 million square feet of positive net absorption during the first quarter, driven by 4.5 million square feet of total gross activity.
The industrial vacancy rate in San Diego continued to decline, falling to 7.09% in the first quarter from 7.93% in the fourth quarter. The rise and fall in the vacancy rate for the past few quarters can be attributed to a substantial volume of high-tech space and newly constructed product entering the market.
For the quarter, the county-wide average asking triple-net lease rate for industrial space rose 4% to 74 cents per square foot per month from the fourth quarter rate of 71 cents. Average triple-net lease rates ranged from 42 cents in Del Mar Heights to $1.93 in Torrey Pines/University Towne Centre.
Continuing a steady pace, more than 2 million square feet of industrial space was under construction at the end of the first quarter. The first-quarter volume of construction represented a 22% increase over the fourth quarter’s 1.6 million square feet. Four of the 21 sub-markets, Otay Mesa, Torrey Pines/UTC, Carlsbad and Rancho Bernardo, accounted for almost two-thirds (65%) of the total under construction.
Office Market
Across the board, first-quarter market indicators reflected a stable office market. Vacancy rates continued to decline, lease rates continued to increase and healthy, positive net absorption continued to be experienced.
The San Diego office vacancy rate decreased to 7.4%, the lowest rate in more than three years.
For the quarter, the average asking full-service gross lease rate for office space in the San Diego County Office market rose 11 cents to $1.73 per square foot per month, an all-time high and the highest level since 1991’s $1.67. Average asking lease rates increased eleven cents since the fourth quarter. In the past year, office lease rates have increased 10%.
Net absorption was at the highest level experienced in the last three years. Led by Downtown, Rancho Bernardo, Mission Valley and U.T.C., the San Diego County office market generated 705,060 square feet of positive net absorption in the first quarter. First-quarter net absorption was up nearly 330,000 square feet from the first quarter of 1999.
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. Approximately 2.3 million square feet were under construction during the first quarter, up slightly from the 2.0 million square feet under construction in the fourth quarter.
The continued positive net absorption despite all of the new space under construction is evidence of the market’s strength.
