Industrial Buyers Have Fewer Opportunities To Invest in the Region
By Joshua Ohl CoStar Analytics May 4, 2021 | 1:30 P.M.
In the past year, rents in the San Diego industrial market have grown more than 5%, the vacancy rate has fallen by 0.7% and 2.3 million square feet has been absorbed — measuring the difference between move ins and move outs.
The investment market has largely followed suit. More than $450 million was invested in San Diego industrial inventory, which includes flex buildings, during the first quarter in 2021. That was roughly even with the market's quarterly average sales volume from 2016 through 2020.
But if there’s one concern regarding the investment market, it’s that the number of active sales listings has fallen notably over the past six months. Many local brokers have buyers lined up, but there's not enough available inventory to go around.
When the first quarter ended, there was a 30% drop in the number of active industrial sale listings in San Diego from six months ago. It was the first time in more than three years that the number of industrial listings had fallen below 115 across the region. In the preceding three years, the number of active for-sale listings averaged 150.
This was by far the largest drop among property sectors in San Diego too. Given the dislocation among retailers, an increase in distress sales or a retrenchment in listings as property owners waited out the pandemic wouldn’t have been surprising. But neither has really taken place. The number of active retail listings fell by only 7% in the past six months.
The difference in apartment listings was even more modest, at 2%. The office market largely held firm, with only two more active listings at the end of the first quarter compared with the third quarter of 2020, although it would not have been surprising to see more sale-leaseback opportunities among firms in need of a cash injection.
With fewer opportunities for industrial investors to place their capital, sellers have largely been able to achieve asking prices, and there hasn’t been discounts like we’ve seen in the past, which previously hovered close to 5%.
The market price, which is based on the estimated price movement of all properties in the market and informed by actual transactions, surged 8.1% year-over-year to $250 per square foot, which is the highest price per square foot on record. The area's market price has also doubled in less than 10 years.
Even so, the San Diego region remains a hot target for national and foreign investors. Almost two-thirds of investment volume has originated with foreign and national interests in 2021.
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