Q1 2023 Industrial Real Estate Report: San Diego, CA
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
San Diego is renowned for its pristine beaches, delightful weather, and vibrant cultural scene. The city thrives in diverse industries, including biotechnology, defense, tourism, telecommunications, and research institutions, contributing to its thriving economy.
With a population of 3.3 million and a growth rate of 0.73%, San Diego remains an attractive destination for residents and tourists alike.
In Q1 2023, San Diego's industrial real estate market posted negative net absorption, increased vacancies, and steady rental rates.
General Area Overview & Demographics:
Nestled along the stunning coast of Southern California, San Diego seamlessly combines natural beauty, cultural attractions, and a relaxed coastal lifestyle. Its warm climate, beautiful beaches, and diverse array of activities make it a sought-after destination similar to its coastal neighbor, Los Angeles.
One of San Diego's defining features is its picturesque coastline, boasting miles of sandy beaches and sparkling blue waters. From popular spots like Mission Beach and Pacific Beach to the tranquil shores of La Jolla and Coronado, there's a beach to suit every preference. Visitors can enjoy sunbathing, swimming, and surfing, as well as opportunities for hiking, biking, and exploring nature.
Beyond its beaches, San Diego offers a wealth of cultural and recreational attractions. Balboa Park, known as the "Cultural Heart" of the city, encompasses numerous museums, theaters, gardens, and the famous San Diego Zoo. The Gaslamp Quarter in downtown San Diego is a historic district known for its vibrant nightlife, trendy restaurants, and live entertainment venues.
Unsurprisingly, the state of California remains one of the most expensive states for commercial real estate in the country.
Education & Culture of San Diego, CA
San Diego is also renowned for its annual events and festivals, including Comic-Con International, a major pop culture convention that draws attendees from around the world. The city hosts various cultural celebrations, art exhibitions, and music festivals throughout the year, enhancing its vibrant atmosphere.
The city is home to a diverse population, with a mix of ethnicities and races. The largest ethnic group is White, comprising approximately 54% of the population, while Hispanic or Latino individuals make up around 30%. Asian Americans, African Americans, and individuals from other racial and ethnic backgrounds also contribute to the city's diversity.
San Diego boasts several renowned universities and educational institutions, including the University of California, San Diego (UCSD), and San Diego State University (SDSU). The presence of these institutions attracts young talent, fostering a vibrant arts, technology, and innovation scene.
Summary of San Diego Industrial Real Estate Performance in Q1 2023
In Q1 2023, San Diego industrial real estate witnessed robust leasing activity, with minimal new product added to the market. The vacancy rate reached 3.1%, with the South San Diego submarket having the highest vacancy at 3.6% and the Central San Diego submarket posting the lowest at 2.5%.
Industrial absorption for the quarter was negative, amounting to approximately -203,000 square feet.
What Are Industrial Real Estate Rents Like in San Diego, CA?
In Q1 2023, overall average asking lease rates for San Diego industrial real estate remained unchanged quarter-over-quarter at $1.63 per square foot yet remained above Q3 2022's numbers.
The North City submarket had the highest rates at $2.80 per square foot, while the East County submarket had the lowest average asking rates at $1.18 per square foot.
Purchase & Leasing Activity
Leasing activity for San Diego industrial real estate in Q1 2023 remained consistent with the previous two quarters, totaling approximately 1.9 million square feet.
The Central San Diego submarket witnessed the highest amount of leasing activity, with 631,593 square feet leased. The largest sale during the quarter occurred in Otay Mesa for $126.8 million.
Notable Industrial Real Estate Deals in San Diego in Q1 2023
Several significant deals took place for San Diego industrial real estate in Q1 2023:
- LaSalle Investment purchased 601,000 square feet at Sunroad Corporate Center for $126.8 million, at a rate of $211 per square foot.
- A private investor acquired 232,000 square feet at Rose Canyon Business Park for $72.8 million, at $312 per square foot.
- R.L. Jones Customhouse Brokers leased 240,000 square feet in Otay Mesa.
- Bekins Moving Solutions leased 71,865 square feet in East County.
These are just a few examples among other notable activities.
New Industrial Real Estate Development Activity in San Diego in Q1 2023
In Q1 2023, there were 2.6 million square feet of new San Diego industrial real estate under construction, primarily concentrated in the South San Diego submarket.
Additionally, nearly 450,000 square feet of new space were delivered during the quarter in the same submarket.
Market Forecast for San Diego's Industrial Real Estate Market
It is projected that absorption, vacancy, and rental rates will increase as the year progresses. However, challenges in the economy and securing construction materials may create a discrepancy between industrial supply and demand.
Takeaways for Industrial Real Estate Investors
Investors should take note that light industrial/manufacturing spaces performed exceptionally well in the first quarter, with strong leasing activity and absorption.
Therefore, if considering building or acquiring new properties for leasing purposes, investors may want to look into such space.
Do your research, stay diligent, and happy investing.
Methodology
This report was written with property information from the MyEListing.com platform in corroboration with other freely available commercial real estate research data.
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