North County Industrial Markets Continue to Recover
The North County industrial markets have seen a dramatic improvement over the last two years and more recently within the last six months. Overall vacancy rates in North County have dropped from 8.8% in 2012 to 7.2% today. North County has seen 12 consecutive quarters of positive net absorption and vacancy rates have dropped in all five North County cities. Currently there are only 15 spaces in the North County industrial market that can accommodate a 40,000 SF requirement; five of those spaces are in escrow or have leases out for signature. Overall demand for space in all five cities has increased substantially and many buyers/tenants are finding it difficult to find locations that will accommodate their needs.
What’s happening with For Sale product?
The sales market bottomed out for industrial product between 2011 and 2013,
depending on the market location. For example, Vista had an average sale price of $105 PSF from 2011-2013, whereas today buildings are trading for an average of $115 PSF. Oceanside had the largest increase over the last 12 months – a building that once sold for $89 PSF in 2013 is now selling for $114 PSF. Every market in North County has seen an increase in sale prices over the last twelve months, and I anticipate seeing more of the same. As long as interest rates remain low, the owner/user demand should remain steady, driving prices up as vacancies continue to fall.
Where are rental rates going?
To best answer this question, it’s good to take a look at the past. North County was hit extremely hard by the recession and industrial markets suffered, resulting in huge vacancies and dramatic rental rate reductions. Construction came to a standstill in 2008, while vacancy rates in North County hit a high of 10.5%. Since that time, we have seen the markets steadily recover and gain momentum. Vacancy rates have dropped substantially in all markets with Escondido leading the way at a 3% vacancy rate. Leasing activity has increased in all size ranges and landlords have cut back on concessions. Although we have seen a small increase in rental rates in some areas, it has not been significant. However, this is soon to change. Low vacancy rates, as well as limited new construction within the next 18 months, will give landlords more than enough reason to start increasing rental rates.
New Spec Development Coming?
New development is certainly on the horizon and could arrive as early as 2015. Because of the recovering market trend, the obvious next wave is new spec development. Carlsbad and Oceanside are two markets that have land that can accommodate a sizable development. There have been some sizable land sales in the North County market lately, some of which include:
• FedEx is in escrow for 39 acres in Oceanside
• Coca-Cola purchased 13 acres in Oceanside
• SR Commercial is in escrow on 15 acres to Spec 220,000 SF
• 12 acres at Palomar Corporate Center in Vista is currently in escrow.