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San Diego Industrial Market Report

4th Quarter 2023

Posted In — Market Research | Market Report

MARKET DRIVERS

DEMAND IN THE SAN DIEGO INDUSTRIAL MARKET cooled in 4Q, recording one of the lowest transaction volumes in leasing in over fifteen years at just 1.7M SF. Concurrently, sublease availability reached a historical high, almost a quarter of the total available inventory. This uptick can be partly attributed to Amazon giving back approx. 600K SF since 2022.

ALTHOUGH THE COUNTY WIDE VACANCY RATE JUMPED 84% YOY from 3.1% to 5.7%, it is still in line with the 10-year average. The trajectory of the pandemic driven demand that drove industrial fundamentals to surge, to reflect record low vacancies and availabilities, was expected to reach its peak within a few years after the initial skyrocketing of increased demand.

INVESTMENT ACTIVITY has slowed considerably in recent quarters amid the growing interest rates, posting at 15-year record low in volume at 5.6M SF. Investment activity has been minimal across most property sectors due to the economic cool down and high interest rates.

ECONOMIC REVIEW

THE UNEMPLOYMENT RATE in San Diego County was 4.2% in November, above the year-ago estimate of 3.3% and unchanged month-over-month, adding 7,500 jobs from October to November. This compares with an unadjusted unemployment rate of 4.9% for California and 3.5% for the nation during the same period.

TRADE, TRANSPORTATION, AND UTILITIES were up 4,400, which led the way for month-over job gains, followed by seasonal hiring in retail trade which was up 3,600 jobs. On a year-over basis, job reductions were strongest in professional and business services industry which was down 6,600 jobs November 2022 to November 2023.

NEAR-TERM OUTLOOK

ALTHOUGH VACANCIES AND AVAILABILITIES have hit record highs over the last few quarters, the limited construction pipeline will help with any upward pressure of the supply-driven demand going forward. While a majority of the space under construction is still available for lease, it is anticipated that the underlying demand drivers in the local industrial market will allow for businesses to remain active and fill the new inventory.

MODERATION IN THE SAN DIEGO INDUSTRIAL MARKET is expected to continue into the new year due to high interest rates and economic concerns. Rent growth will continue to slow, and although vacancies and availabilities have been rising, it is predicted that it will max out and hit its peak in the coming quarters.

Source: CoStar, EDD, ES Business Journal

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