Driven by 3.7 million square feet sale and lease activity, second-quarter net absorption of industrial space in San Diego totaled more than 1 million square feet. The industrial vacancy rate continued to decline, falling to 5.6% in the second quarter from 5.9% in the first quarter despite nearly 1 million square feet of completions that entered the market, and down 12% from the 6.4% rate in the second quarter of 2000.
The countywide average asking triple-net lease rate for industrial space rose 5% from the first quarter, to 84 cents per square foot per in the second. Average triple-net lease rates ranged from a high of $3.25 in Torrey Pines to a low of 49 cents in Central San Diego. 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.
In the second quarter, the San Diego County industrial market delivered 17 buildings totaling 948,250 square feet of new completions, with approximately 2.6 million square feet under construction at the end of the quarter. That was down slightly from first quarter due to the large amount of space delivered.
Meanwhile, office construction remained active during the second quarter and played a major role in the quarterly change of vacancy and net absorption in that segment. More than 700,000 vacant square feet entered the office market in the second quarter, pushing the vacancy rate to 7.4%, up from 5.9% in the first quarter.
Driven by the submarkets of Sports Arena/Pt. Loma, Del Mar Heights and South San Diego, the San Diego County office market rebounded from the first quarter’s negative net absorption to a positive net absorption of 56,054 square feet during the second quarter.
The average asking lease rate for office space rose 4 cents, to $1.91 per square foot per month, the highest level in history. Among the eight major submarkets in San Diego County, Torrey Pines produced the highest average asking lease rate for the second quarter at $2.93 (10 cents higher than in the first quarter) and East County averaged the lowest at 95 cents per square foot.
Back on its downward trend, the San Diego County retail vacancy rate decreased to 3.7% in the second quarter, an 11% drop from 4.1% in the first quarter. With strong showings in the El Cajon, Temecula/Murietta and Santee/Lakeside submarkets, the county experienced positive net absorption of 207,440 square feet, rebounding from the negative absorption of the first quarter.
The average asking lease rate turned around its gradual march upward by declining a penny to $1.69 per square foot per month, triple-net. However, the average asking rent has inflated 7 cents (4%) from the second-quarter 2000 rate of $1.62 per square foot.
Confirming developers’ faith in San Diego County, construction activity increased 17% to 2.9 million square feet, the highest level in eight quarters. Approximately 2.1 million square feet of new retail construction is in the planning stages and scheduled for completion during the next four years.
Analysis provided by CB Richard Ellis’ Global Research and Consulting.
