IRR-San Diego Mid-Year Viewpoint 2015 Local Market Report - Industrial
Despite increasing rental rates and very low vacancy rates, market participants are still cautious regarding the San Diego industrial market. San Diego industrial prices have yet to return to pre-recession levels, and there is not enough demand to spark speculative development in the near future like other property types. This is partially due to the fact that land itself is expensive in San Diego, which requires high rents to justify development.
That said, market conditions are expected to remain positive as they were in recent past as the continual decrease in supply drives lease rates upward. As discussed in previous Viewpoints, the Otay Mesa submarket is expected enjoy the benefits of the recovery. With available land to develop, increasing demand with U.S./Mexico operations (maquilladora), and the opening of another border crossing, this submarket will continue to be desirable as the barrier to entry is lower than other northern or central San Diego submarkets (where rents and values are higher).
Challenges that the industrial market face include corporate relocations that cause additional inventory to come online, manufacturers moving operations to Tijuana as infrastructure improves, and the repositioning of industrial buildings for high-tech office use as that particular industry continues to boom in San Diego. Another challenge is satisfying tenant needs as older buildings need substantial upgrades to appeal to tenants requiring ESFR sprinklers and heavy power or gas lines.
Nevertheless, as the overall economy and infrastructure improves, so too will the industrial market in the near future.
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IRR Mid-Year Viewpoint 2015 comprises a National Overview report and 300+ two-page Local Market Reports for all key property types as well as additional resources, including metrics methodology, graphs, and tables; these free reports may be downloaded from IRR’s site here.