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October 18, 2017

Industrial Construction Activity Hits Post-Recession High

Connect Commercial Real Estate

The consensus gleaned from 3Q 2017 San Diego industrial market reports from Kidder Mathews, NKF and CBRE is that strong positive net absorption, tight conditions in the central submarkets, and high land prices combined to drive new construction. Quarterly net absorption was reported strong across the trio of reports, as it pushed past the one-million-square-foot mark for the first time in two years,

CBRE researchers say 1.053 million square feet of positive absorption occurred in Q3 2017. After a slow start to the year, net absorption year-to-date now exceeds 850,000 square feet.

NKF reports that construction activity hit a record high with 1.6 million square feet underway, most of which will deliver in 2018. There were 18 buildings under construction in Q3, with an average building size of 87,393. CBRE tracked 10 new projects that broke ground in Q3 2017, which it says brought overall construction activity to more than 2.6 million square feet, a post-recession high.

NKF noted that new construction exceeded net absorption this year, yet vacancy has remained in the mid 4% range.

Researchers at Kidder Mathews say 3Q 2017 countywide total vacancy decreased by 30 basis points from last quarter, to 5%, and below the 5.3% vacancy recorded at the same time last year. The vacancy rate for San Diego County's industrial market is one of the lowest posted in the past 15 years, and has remained at this record low level for two years.

CBRE notes the overall vacancy rate dropped significantly to 4.3%, however, the rate remains 10 basis points (bps) above the post-recession low of 4.2% set last year. Industrial demand levels are well above 10 million square feet, which CBRE says sent ripples through the market as developers and landlords sought to acquire land or repurpose space to satisfy larger requirements.

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