Q4 2022 Industrial Real Estate Report: San Diego, CA
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Significant industries in San Diego include biotechnology, defense and military, tourism, and telecommunications, with the biotech industry significantly contributing to the city’s economy and employment.
Unemployment in San Diego declined from 3.1% in Q3 to 2.9% in Q4.
The metro area’s population increased by 0.7% from 2021 to 2022. In Q4 2022, San Diego’s industrial real estate market saw positive absorption, increased vacancies, and rising rents.
General Area Overview & Demographics
In 2021, San Diego had an estimated population of 1.42 million, making it the second-largest city in California. White residents comprise the largest ethnic group at 54.5%, followed by Hispanic/Latino residents at 28.8%. Other significant ethnic groups include Asian (16.2%), Black (6.1%), and Native American (0.6%) residents.
San Diego Median Household Income & Population
The median household income is $87,636, which surpasses the national median household income. However, the cost of living in the city is also higher than the national average, and housing is the most considerable expense.
A significant portion of the population belongs to the 18-34 age group, attributed to multiple universities and military bases in the area. Over the past decade, the median age of residents has slightly increased from 33.6 in 2010 to 34.8 in 2021.
Several highly regarded higher education institutions call San Diego home, including the University of California San Diego and San Diego State University. The city’s thriving biotech industry is also closely linked to the research conducted at local universities.
Balboa Park and the USS Midway Museum are notable attractions. The city’s beaches and parks, such as La Jolla Cove and Torrey Pines State Reserve, are also major draws.
With a Mediterranean climate, San Diego experiences mild, wet winters and warm, dry summers. The warmest month, July, has an average high temperature of 76°F, while the coolest month, December, has an average low temperature of 48°F. It receives most of its rainfall between November and March, with an average annual total of 10.34 inches.
Summary of San Diego Industrial Real Estate Performance in Q4 2022
Overall vacancy for San Diego’s industrial real estate market rose from 2.6% in Q3 to 2.8% in Q4. In Q2 2022, industrial vacancy in San Diego was as low as 1.45%.
The North City submarket had the highest vacancy at 3.9%, followed by Central San Diego at a rate of 3.3%.
The lowest was South County at 1.9%, the only submarket below 2%.
Q4 2022 saw 185,000 square feet of positive absorption for San Diego industrial real estate, bringing the annual total in the city to 2.7 million.
Though absorption was positive in Q4, half of the submarkets (North City, North County, I-15 Corridor) recorded negative absorption.
South County absorbed the most space quarterly and annually, posting over 256,000 square feet and 1.7 million, respectively.
What are industrial real estate rents like in San Diego?
Average rents for San Diego industrial real estate were $1.63 per square foot in Q4 2022, an increase from Q3’s $1.48.
North City had the highest rents at $2.77, the only submarket with an asking rate above $2. South County was lowest at $1.16.
Purchase & Leasing Activity
Sales volume for San Diego industrial real estate totaled $4.1 billion in 2022, with around 10.5 million square feet transacted at an average price of $390 per square foot.
Additionally, there were around 10 million square feet of leasing activity in 2022, a decline from 2021’s 15 million.
Notable Industrial Real Estate Deals in San Diego in Q4 2022
There were several notable deals that took place for San Diego’s industrial real estate in Q4 2022.
- LBA Realty purchased 204,000 square feet for $64 million.
- Cush Enterprises purchased 64,000 square feet for $27.4 million.
- PCI Pharma leased 105,000 square feet.
- Pirch leased 93,600 square feet.
These are select examples among other activity.
New Industrial Real Estate Development Activity in San Diego in Q4 2022
San Diego’s industrial real estate market saw over 730,000 square feet of new deliveries in the fourth quarter, an increase from Q3’s 194,000.
5.4 million square feet remained in the pipeline at the close of 2022.
Market Forecast for San Diego’s Industrial Real Estate Market
Although the capital markets and leasing sector in San Diego’s industrial market showed some signs of cooling in Q4 2022, the market’s fundamentals remained strong, with persistent demand for large-block space.
The lack of available options larger than 100,000 square feet for direct lease is resulting in rising asking rents.
While economic conditions may influence activity in the coming quarters, the current trends suggest significant growth potential.
Takeaways for Industrial Real Estate Investors
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Investors should approach San Diego carefully to observe if this stall was either temporary or an indicator of what’s to come.
Do your research, stay diligent, and happy investing.
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