San Diego’s Industrial Market Is So Hot, Investors Are Leasing Up Assets Before Deals Close
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A newly released Urban Land Institute study of best prospects for investors in 2017 ranked industrial properties, especially those designed to accommodate e-commerce tenants, at the top of the list.
Stos Partners principal C.J. Stos concurs. His company, a private investor/management firm, recently acquired a 91,541 SF single-tenant industrial building in San Diego’s National City for about $12.2M and secured a lease for the entire building while it was still in escrow.
San Diego-based RAF Pacifica Group reported a similar experience in September, acquiring a 65,300 SF office and R&D property in the Carlsbad Research Center and immediately leasing the entire building—all over one weekend.
“Industrial users continue to seek opportunities to consolidate and increase operational efficiencies,” C.J. tells Bisnow. “As an owner, this means understanding which property attributes will deliver the deepest value to potential tenants.” In this case, the tenant was attracted to the property size and location at 901 Bay Marina Drive, which is on the west side of I-5 a couple of blocks from the port and near Hwy 54, a connector to the 805 freeway.
This vacant property was a rare find with potential, C.J. says. The facility is on 6.12 acres, but only occupies about three acres, and is close to freeways and ports. “The property’s excess land offers a myriad of uses to industrial tenants, from storage to trucking to additional parking, among others,” C.J. says.
Although this is an older property, he says there were multiple offers from creditworthy tenants before the acquisition deal closed. “The functionality, location and size of this property is appealing to large credit tenants who continue to have difficulty finding facilities with these attributes in this market,” he says. C.J. says Stos plans to invest a significant amount of capital for facility upgrades, including a new roof, exterior paint and landscaping, as well as upgrades to the parking lot and HVAC system.
Lee & Associates principal Rusty Williams, who repped Stos in the acquisition and marketing, says the National City submarket has demonstrated robust growth over the past year, with vacancy rates dropping to just 2.6% in recent months. “This market climate fuels off-market transactions, as investors seek to remain ahead of the competition,” he says, which is why he sourced the opportunity before it hit the market. Colliers SVP Chris Holder handled the deal for the seller, BlueLinx Corp.
Industrial vacancy continues to tighten throughout San Diego County, making it difficult for tenants and investors to find quality, well-located industrial assets. Overall industrial vacancy dipped to 4.4% in Q3 2016, 48 basis points lower than the previous quarter and down from 5.2% a year ago, according to a Colliers International report. The two most active industrial submarkets in the San Diego region are North County, where nearly 2M SF of R&D and industrial space is under construction, and South County, which has experienced a significant uptick in cross-border business activity over the last couple of years.