San Diego's Strong Industrial Market Creates Opportunities For Innovation
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San Diego's industrial sector is soaring high, creating new opportunities in the market.
Encinitas-based developer RAF Pacifica has taken advantage of that growth, using the relative market safety to expand the concept of what industrial buildings can be.
RAF Pacifica founder and President Adam Robinson said the company has found a special niche in creative industrial.
"We observed the creative office, apartment guys and asked, 'What are they doing?' We took what we thought was the best, R&D — you know, rob and duplicate — into our industrial project. Fire pits, decks, bocce, BBQ — every amenity you can imagine in a high-end apartment project," he said during Bisnow’s Word on the Beach: San Diego’s State of the Market event.
Current market vacancy is at 4%, and Q4 had the highest dollar volume of industrial sales in the last 10 years, totaling $692M, according to a recent JLL report. Rents are 15.8% higher than the last peak in 2007.
North County, in particular, is seeing unique industrial growth. Rancho Bernardo had the highest industrial investment sale in the county at $330/SF. And out of the 2.4M SF of industrial space under construction in the county, 1.7M SF is in North County.
"Employees in these industrial buildings have changed," Robinson said. "They like more outdoor space, want activity in their buildings, something that is missing in industrial. It doesn’t work in every market. But at least in North County, a lot of business owners live in the area, so they are actually occupying the buildings."
Bisnow spoke with Robinson about how the concept of creative industrial has taken hold.
Bisnow: What does creative industrial mean?
Robinson: Creative industrial combines the highest in functionality in terms of industrial product along with the latest in creative office amenities. This includes amenities such as wall-to-ceiling glass entry, modern finishes and outdoor amenities to encourage collaboration along with highly functional industrial features such as dock-high doors, appropriate clear heights and ESFR sprinklers, among others.
Bisnow: What are the best examples of it in the county?
Robinson: We were the first developer to spearhead the creative industrial revolution throughout San Diego County. We have a total of 10 creative industrial buildings totaling more than 1M SF throughout the region. Elevate was one of our first creative industrial projects to be completed, which consists of two buildings totaling 156,977 SF and delivers a state-of-the-art industrial facility that integrates a creative office, corporate headquarters aesthetic. Vector is another prime example of quality creative industrial space and will be completed this month.
Bisnow: Why was there a need for this in the industrial space? The market has been quite strong.
Robinson: There is strong demand for creative industrial properties for two different reasons. The first is that tenants are demanding creative environments that will aid in attracting and retaining top talent. Today’s workforce is demanding workspaces with amenity-rich lifestyle elements and communal areas.
In addition to attracting top talent, businesses are demanding creative industrial properties because they allow them to house both their corporate headquarters and industrial operations all in one location. This allows companies to drive down operating costs.
Bisnow: What interesting projects are coming online?
Robinson: In addition to our creative industrial portfolio, we have a variety of mixed-use projects underway throughout the county. We are developing Flight, an intimate 26K SF luxury mixed-use development that will integrate high-end restaurant space with ground-floor retail, office and multifamily in Solana Beach. We also have a project underway known as Lift, which is a mixed-use creative office property that will feature 44,797 SF of unique office space and 8,496 SF of restaurant space. We also recently acquired the old Whole Foods-anchored retail center in downtown Encinitas, which we are rebranding to RAF Pacifica Station.
Bisnow: What's next for industrial? How has the sector grown over the years?
Robinson: The industrial sector has certainly grown over the last several years and continues to emerge as the darling of the real estate sector. This growth is fueled by the rise of e-commerce and the growing demand for "last mile" delivery hubs. Retailers are opting to lease smaller space in urban infill markets and major metropolitan areas such as San Diego. This provides retailers with "last mile" delivery centers in order to increase delivery times to consumers. Today’s consumers are now demanding goods to be provided very quickly, and in some cases, the same day.
The industrial sector, in particular creative industrial, has also continued to grow as businesses shift toward corporate consolidation. It is more economical for companies to consolidate their corporate offices and industrial operations into one location for greater efficiency and reduced costs.
Bisnow: Is there any end in sight for industrial's viability?
Robinson: The viability of the industrial market only continues to strengthen. We anticipate that this sector will continue to garner strong demand from a variety of industries and investors for many years to come.
Hear more from Robinson and other experts at our San Diego Industrial 2018 event March 7 at The Hyatt Regency La Jolla at Aventine.