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Hines Buys Industrial Property in High-Demand Area Near US-Mexico Border

Global Investment Firm Also Under Contract for Two More Properties in San Diego's Otay Mesa

Hines acquired two buildings totaling more than 200,000 square feet in San Diego's Otay Mesa neighborhood near the U.S.-Mexico border. (Murphy Development)

By Lou Hirsh CoStar News June 13, 2022 | 2:09 P.M.

Global investment firm Hines has boosted its San Diego industrial property with the purchase of a two-building complex in Otay Mesa, with plans to buy two more, underscoring rising demand near the U.S. border with Mexico.

Houston-based Hines said it bought the buildings spanning a total of about 232,000 square feet, completed last year at 7255 Otay Mesa Road and 1695 Continental St., from Murphy Development of San Diego. The price was not disclosed by the buyer, seller or brokers.

The vacant buildings are within the larger 52-acre industrial complex known as Brown Field Technology Park, built in several phases over the past few years by Murphy Development. Hines officials said the company is also under contract to acquire two adjacent buildings totaling about 203,000 square feet that are under construction in the same industrial park, with completion expected in the second quarter of 2023.

“This marks the firm’s third industrial acquisition in San Diego in the last 18 months,” said Hines Managing Director Eric Hepfer in a statement. “This expansion is indicative that the market is primed for growth as we aim to meet tenant demand.”

The border-adjacent Otay Mesa neighborhood is now among San Diego’s fullest industrial enclaves and one of its most active for new development, leasing and sales. The enclave has a 2.4% vacancy rate, with rents rising 12.1% over the past year as industrial purchase deals reached $407 million in the past 12 months, up 35.1% from the prior year, according to CoStar data as of June 10.

Hines joins several investment firms, developers and tenants that have significantly increased their Otay Mesa presence as companies look to bolster their cross-border presence and fix supply-chain disruptions caused by the pandemic. The list includes Rockefeller Group, Amazon and several logistics and freight transportation companies. Some tenants are in the process of relocating logistics operations from overseas hubs that are still seeing clogged supply pipelines, including Asian cities affected by lingering pandemic lockdowns and worker shortages.

“With continued growth of e-commerce, onshoring and tight industrial markets, we saw very strong demand from users and investors for Brown Field Technology Park,” said Murphy Development President Kaitlin Arduino in a statement.

JLL broker Andy Irwin, who represented Murphy Development, said Otay Mesa had 770,000 square feet of positive tenant absorption — more space being leased than vacated — among the strongest showings in the San Diego region during the first quarter. Even with its strong fundamentals, including rent growth, Otay Mesa remains relatively inexpensive compared with neighborhoods of Central San Diego and neighboring regions such as Los Angeles and Orange counties, he said.

“Nearshoring to Mexico and a meteoric rise in rents in the adjacent Southern California industrial markets has attracted e-commerce, logistics, warehousing and manufacturing to this submarket,” Irwin said of Otay Mesa.

Bryce Aberg of brokerage Cushman & Wakefield, who also represented the seller, said the Otay Mesa buildings were attractive based on their location near several freeways, including interstates 5 and 805 and state Route 125, along with two regional airports and two busy border crossings connecting San Diego with Tijuana, Mexico. Aberg said it is “very difficult to replicate” that access to the cross-border economy in other California industrial neighborhoods to the north.

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