Otay Mesa leads 3Q industrial leasing gains in South County markets

Friday, November 1, 2013

South County industrial markets continue to improve across the board in the third quarter, led by Otay Mesa’s steady net absorption, according to a report by real estate services brokerage Cassidy Turley.

The South County industrial markets posted 385,800 square feet of net absorption in the third quarter, with all submarkets performing better than last quarter.

“Particularly encouraging was the activity in Otay Mesa which posted 130,655 square feet of new signed leases,” Cassidy Turley wrote. “These included 3D Robotics taking 32,420 square feet at Ocean View Hills Corporate Center, Recall Total Information Management leasing 41,047 square feet in the same project and San Diego Cold Storage taking 11,115 square feet of freezer space at the Britannia Industrial Park.”

“A larger number of new space requirements have surfaced and a few of those that had previously been put on hold have again become active,” the brokerage wrote.

Cassidy Turley reported that Otay Mesa’s direct vacancy dropped to 1.97 million square feet by the third quarter’s end.

The figure had been as high as 2.83 million square feet, or even higher by some accounts in 2009.

Otay Mesa still has the highest overall industrial vacancy in the South Bay at 19.6 percent, followed by 11.7 percent for San Ysidro, 7.7 percent for Chula Vista and 4.9 percent for National City.

Darren Mullins, a Cassidy Turley senior vice president — who along with associate Erik Parker compiles the report — said more tenants are touring Otay Mesa properties than two years ago.

“And the sales market is firming up a lot,” Mullins said.

After having experienced somewhat of a drought in the last five years, Otay Mesa posted two key land transactions in the latest quarter.

One was an approximately 8.86-acre site at the junction of Siempre Viva Road and Otay Center Drive that was purchased by Duran Freight for $4.7 million or $12.17 per square foot.

The second was the last remaining lot at Martinez Ranch Industrial Park, 7.63 acres on Britannia Avenue, purchased by the Hamann Companies for $2.74 million or $9 per square foot.

Building sales activity captured headlines this quarter with several transactions occurring throughout the market.

The survey, which also brings in Barrio Logan and goes as far north as Rose Canyon, noted the Metropolitan Transit System’s purchase of a 90,000-square-foot industrial building at 1202 Sigsbee St. in Barrio Logan for $16.61 million.

Other notable sales during the third quarter included an approximately 40,000-square-foot industrial building on 2.27 acres at 1010 W. 19th St.t in National City for $3 million to National City Partners.

“Industrial property sales flourished this quarter with owner/users dominating the landscape of buyer activity, while investors seeking double-digit returns through distressed assets were more often coming up short,” the report continued.

Mullins said with National City and Chula Vista virtually built out, as far as industrial development is concerned, “there are no large campus opportunities left from the Central County on down except for Otay Mesa.”

Notable leases in the county’s southern part included Recall Total Information Management’s 44-cent-per-square-foot, 126-month lease of 41,047 square feet, at 1462 Corporate Center Drive in Otay Mesa; FlyDive’s 85-cent-per-square-foot, 39-month lease for 13,310 square feet at 4630 Santa Fe St. in Rose Canyon/Morena; and Gary Manufacturing’s 76-cent-per-square-foot, 36-month lease for 12,705 square feet at 2702 Southport Way in National City.

The report stated that although the South County industrial market is better than it was during the recession, it still has a long way to go.

“While positive activity in the leasing market this quarter in the South Bay is encouraging, growth in this sector is expected to remain fragile and uncertain for the near term; especially in the southern-most submarket of Otay Mesa,” Cassidy Turley wrote. “For the most part, even though tenants will have the upper hand in lease negotiations of their stance, landlords will begin to exercise more resistance to free rent and other concessions. Regardless, landlords will face a challenging and long road ahead to grab the attention of new tenants, all while realizing limited rental rate growth.”

Mullins said new speculative development on Otay Mesa will be a few years off.

“The vacancy still has to come down quite a ways for that to happen,” Mullins added.

By THOR KAMBAN BIBERMAN, The San Diego Daily Transcript

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