San Diego’s industrial market continued to tighten in Q1, with positive net absorption for the 15th consecutive quarter, according to a CBRE report, which notes the region’s industrial market experienced positive absorption of about 466,300 SF.

Industrial activity in Oceanside is responsible for boosting the region’s net absorption, with a total of 549,300 SF in four buildings delivered—a new 312k SF FedEx building and First Park @ Ocean Ranch, a 237,300 SF, three-building complex (both were pre-leased), CBRE first VP Adam Molnar, tells Bisnow. FedEx is occupying its entire building. Suja Juice and Brixton, a growing local apparel brand, will occupy the entire First Park @ Ocean Ranch project, 171,700 SF and 65k SF, respectively.

Above is Adam snapped with his family (back row: daughter, Masha; wife, Lisa; and son, Mason. Front row: sons, Gabriel and Trent).

Adam says Oceanside is a hotbed for industrial real estate activity due to a combination of availability, comparatively low rents and expansion of existing Oceanside companies. This includes Gilead Sciences, a pharmaceutical R&D firm; Magnaflow, an auto exhaust system manufacturer; Coca-Cola; Jeldwen Windows (La Cantina brand); and Brixton. Availability of buildings and competitive rents have attracted users from outside Oceanside, including Suja Juice, FedEx and Total Transportation Logistics.

Pictured is FedEx's new 312k SF distribution facility in Oceanside.

Overall, North San Diego County vacancy stood at 4.4%, 10% of which was sublet spaces. Plumbmaster, a national distributor of plumbing supplies, exited the Oceanside market as it consolidated facilities elsewhere, vacating a 26-year-old, 62k SF space, which Adam suggests is a challenging space, but priced right for warehouse storage.

MacDermid, a global manufacturer of specialty chemicals, vacated a 170k SF industrial space, which boosted the San Marcos vacancy rate by 2%, to 5.4%. Adam explains San Marcos has a relatively small amount of industrial stock, just 7.9M SF, so 170k SF of vacant space had a significant impact on the vacancy rate.

Supply constraints, combined with surging demand, has caused industrial asking rents to escalate 6% to $1.16 NNN in Q1 over the previous quarter, but average North County asking rent is just $0.75/SF NNN, Adam notes. Countywide, vacancy has remained at just 4.5% for three consecutive quarters. Meanwhile, only one 44k SF warehouse building in Otay Mesa broke ground in the first quarter.

The report suggests with such positive market fundamentals, redevelopment of obsolete office space to industrial use is now feasible.

Above is First Park @ Ocean Ranch.

Adam says San Diego’s expanding economy is driving the industrial real estate boom. He notes most activity is distribution-related due to growth in e-commerce, but manufacturing employment has grown by 3.2% since February 2015, with manufacturers adding 3,300 jobs, affecting the industrial sector.

“We’re seeing a significant increase in lease rates,” Adam tells us. “Continued demand and historically low vacancy are causing rates to increase 8% to 10% on an annualized basis. There is a significant shortage of quality dock-high warehouse/distribution product, which is where we expect to see the largest rent increases over the next 12 months.”