San Diego Industrial Market Rebounds In 2017 After Flat First Half

Despite a relatively flat first half of 2017, San Diego's industrial market displayed resiliency during Q3 and Q4, achieving more than 930K SF occupancy growth from July to December, according to Cushman & Wakefield’s newly released Q4 2017 market report. 

“The year began slow but the third quarter really got things back on track and into high gear, and the year was able to finish in the strong manner that we all expected," Cushman & Wakefield Research Director Jolanta Campion said in a statement. "Vacancy now stands at its lowest point we have ever tracked on record or over a 15-year period."

Campion said occupancy growth in 2017 has decelerated from the levels seen in 2012 to 2015, which collectively averaged 2.5M SF of growth per year. But with supply having constricted at a sub-5% vacancy, it is impressive that the market was able to achieve another nearly 1M SF of annual growth, she said. Campion called it a testament to the market's resiliency and desirability, adding that 2017 outperformed 2016's level of occupancy growth by over 30%.

Additionally, economic activity in the manufacturing sector expanded in December.

Growth for the region looks encouraging, too, though demand is outpacing supply. 

“There are currently 29 industrial buildings totaling over 3.1M SF under construction, the highest level in 12 years," Cushman & Wakefield Executive Managing Director Aric Starck said.

The last time was in Q4 2006, when there was 3.6M SF under construction.

"However, with a low countywide direct vacancy of 3.9%, it is unlikely that this level will satisfy demand for new, functional space," he said.

Starck said this trend has led to an increase in speculative construction as developers and landlords become more bullish on their prospect of leasing new space. Though Cushman & Wakefield expects around 2.9M SF of new industrial space to be delivered vacant to the market during 2018, the brokerage estimates it will not be empty for long.