Western Real Estate Business

SEP 2017

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

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M A R K E T H I G H L I G H T: S A N D I E G O 44 • September 2017 • Western Real Estate Business www.REBusinessOnline.com We've all seen and heard about the housing crisis and lack of affordable housing in San Diego. Virtually every market in the county is experiencing all-time-high prices that continue to rise. The latest reports are starting to refer to it as "housing catastrophe." But has anyone heard about the in- dustrial real estate crisis? Probably not, but that doesn't mean there isn't a real shortage of industrial real estate in San Diego County. There is a par- ticularly extreme shortage of small in- cubator space for startup businesses. Multi-tenant incubator space is the typical starting point for most small manufacturers, contractors, tech com- panies, R&D; and many other busi- nesses that are critical to our economy and growth. SAN DIEGO FACES POTENTIAL INDUSTRIAL REAL ESTATE CRISIS Ken Robak Executive Vice President, Pacific Coast Commercial Waterfront Retail Opportunity Request for Proposals The Port of San Diego is seeking an interim manager/operator for Seaport Village, an approximately 14-acre retail center, which borders the western edge of downtown San Diego with breathtaking views and inescapable foot-traffic. Learn more at portofsandiego.org/seaportvillageRFP Seaport Village 90,000 square-foot center over 50 specialty retail shops 17 eateries and outdoor entertainment $35 million in gross sales The total industrial vacancy rate in the San Diego marketplace is currently 5.2 percent. Nearly half of the submarkets are posting va- cancy rates below 3 percent, with East County being the lowest at 1.4 percent, followed by Central San Diego at 1.6 percent. With these submarkets experiencing near all-time-low vacancy rates, rental rates have continued to rise, making it extremely difficult for businesses to secure space. There are only 39 incubator spaces in the size range of 800 square feet to 1,500 square feet in all of San Diego County. This is out of the more than 7,000 indus- trial building in the market and more than 500 spaces currently available for lease. Innovation and entrepreneurship are the en- gines of our economic growth. Without available space, many of these startups may never get off the ground. Although there are 14 indus- trial buildings currently under construction in the county total- ing more than 1.6 million square feet, 68 percent of the square foot- age is preleased. The majority of these buildings are also designed for large users or as single-tenant buildings with very little dedicat- ed incubator space. The challenge with bringing new incubator in- dustrial space to the San Diego market is cost. With land prices and construction costs at elevated levels, in addition to governmen- tal fees, very few developers are taking on this challenge. One developer that has identi- fied this extreme shortage of small space is Dentt Development. The principals, Ryan and Jeremy Dentt, are expecting to break ground this fall with the much- anticipated Marshall Avenue In- dustrial Park in El Cajon. The sev- en-building project will total more than 112,000 square feet with flex- ible size spaces. Nearly 65 percent of the project is dedicated to small incubator spaces of 900 square feet to 2,000 square feet. Based on the current projects under planning and construction, it is unlikely that this level of new construction will satisfy increas- ing demand for space. This will likely not satisfy the demand for small startup businesses, which are the innovators in our econo- my. Just like the housing short- age affecting our local economy, the industrial real estate crisis in San Diego County will affect the entrepreneurs and innovators of tomorrow.

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