By Jack Rogers
April 24, 2024
ALM | Globest.com
Leasing activity and asking rents tick up, while space for new supply is limited.
SAN DIEGO–Although vacancies and availabilities in San Diego’s industrial market have increased along with other markets in Southern California that have normalized following the pandemic boom, the long-term outlook in San Diego points to stability.
The industrial vacancy rate increased for the eighth consecutive quarter in the first quarter of 2024 while net absorption was negative for the seventh consecutive quarter. The vacancy rate hit 4.6% and net absorption totaled minus 354,000 square feet, according to a new market report for San Diego County from CBRE.
However, leasing activity remained resilient, jumping to 2 million square feet in Q1 from slightly more than 1.5 million square feet in Q4 last year. In the first quarter, four deals were signed with more than 100,000 square feet of space, including three new lease deals and one renewal.
Prior to Q1 2024, the last lease involving space of more than 100,000 square feet was inked in May 2023.
Low-finish rents have been a source of stability in the market, CBRE said, with asking rents rising to $1.40 per square foot per month in Q1, a 2.5% increase in a year-over-year comparison.
“Vacancies increased and demand softened, but overall market fundamentals remained healthy in the first quarter, often surpassing historical averages,” CBRE’s report said. “An indication of the market’s strength was the ongoing growth of asking rents throughout the quarter.”
Despite continued negative net absorption, asking rates in four of the five major industrial submarkets of San Diego increased in Q1, the report said, with the increases coming mainly from low-finish product.
Most of the 515,000 square feet of new supply delivered in the first quarter was concentrated in the South San Diego submarket, which saw four new deliveries.
The first-quarter construction pipeline of 2.3 million square feet is barely a third of the peak of more than 6 million at the beginning of 2021.
“Looking ahead, San Diego will benefit from a relatively finite supply of industrial product. Most submarkets have little room for growth, which will stunt new construction and keep supply-driven pressure to a minimum,” CBRE’s report said.
“The local industrial market is well positioned for the future and, though vacancies could move higher, modest inventory expansion and a growing economy should hold fundamentals in check,” the report added.
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