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Otay Mesa Industrial Keeps Its Momentum

Otay Mesa has been a San Diego industrial hot spot for most of this decade, with little indication that it is going to slow down. Developer, tenant and investor interest continue to support the market.

Otay Groundbreaking Shovel Ceremony
Sunroad Enterprises and Majestic Realty Co. execs breaking ground for Majestic Sunroad Center.

In October, Sunroad Enterprises and Majestic Realty Co. broke ground on the 227K SF Majestic Sunroad Center, a three-building industrial campus in Otay Mesa. The development represents the partnership's first industrial project in San Diego County.

“Strong tenant demand, low vacancy rates and a distinct need for new industrial inventory make this ideal timing to bring Majestic Sunroad Center to market,” Sunroad Enterprises President Dan Feldman said. 

The development joins others underway in the market, including the last building in the Siempre Viva Business Park (Building 17) by Murphy Development Co., as well as the company's third building at The Campus at San Diego Business Park and new industrial space at Brown Field Technology Park. 

Also underway in the market is Kearny Real Estate Co.'s Otay Crossings which, at 311 acres, is one of the larger recent industrial developments in San Diego County.

By providing three separate buildings of different sizes, the Majestic Sunroad Center's developers aim to offer adaptability that will accommodate a range of businesses in a variety of local industries.

"The product will help meet the growing demand in Otay Mesa,” Majestic Realty Co. Senior Vice President Brett Tremaine said. “The site will create options for a diverse range of users."

The property will include 30-foot clear height, cross-dock loading, LED lighting, ESFR fire protection and secured truck courts. Majestic Sunroad Center is expected to be completed in 2019.

Otay Mesa Industrial Keeps Its Momentum
One of the properties in the Otay Mesa industrial portfolio acquired by BKM

Investors are also keen on Otay Mesa. Recently BKM Capital Partners acquired a 703K SF industrial space portfolio of 14 buildings in the market. The seller was Stockbridge Capital Group.

“Major corporations such as Kraft, Sharp, Bose, General Dynamics and Camelback have already taken large positions in Otay Mesa in order to bolster access to components of the supply chain," BKM CEO Brian Malliet said.

"With the opening of the new Port of Entry to Mexico in late 2019, demand for industrial assets in the region will continue to grow, further placing upwards pressure on rental rates,” he said.

Though not ratified yet, the revised NAFTA — USMCA — might help dispel some of the uncertainty that has hung over border trade in recent months. Then again, growth on both sides of the border hints that the local economy (San Diego-Tijuana) wasn't overly worried about the trade agreement falling apart in any case. 

“Otay Mesa is becoming a preferred regional distribution area into San Diego," Cushman & Wakefield Executive Managing Director Jeff Chiate said.

"The Otay Mesa industrial submarket has recorded 1.1M SF of positive net absorption over the past five years, driving rental rates upwards with tenant demand at a record high."

Chaite, along with colleagues Jeffrey Cole, Bryce Aberg, Ed Hernandez and Mike Adey, represented the seller in the BKM-Stockbridge deal.

The portfolio is adjacent to the border with Mexico and is currently 97% occupied by 44 tenants. BKM plans to renovate the assets, including such improvements as new paint, landscaping and signage, and updating HVAC systems and the roofs.

Siempre Viva Business Park Bldg 17
Siempre Viva Business Park Building 17

Tenants are also eager to find space in Otay Mesa. For example, CareFusion has signed a five-year lease for the entire 122K SF Building 18 at Murphy Development’s Siempre Viva Business Park for warehousing and distribution.

The company is scheduled to move into the building in January. Andy Irwin and Joe Anderson of JLL represented Murphy Development, while Steve Holland and Anderson of JLL represented CareFusion.

Man Crates signed a three-year lease for a 44K SF industrial distribution suite in the Airway Business Park in Otay Mesa. The space will support the company's gift basket manufacturing service, which creates gift boxes for men. 

Chris Holder, Mark Lewkowitz and Will Holder of Colliers International San Diego Region represented the landlord, Gateway Industrial. Erik Parker and Karl Hansen of CBRE represented Man Crates.