Here Today and Gone Tomorrow
The Industrial sector is the new “Park Place” on the Monopoly board.
Who survived and thrived during and post-pandemic?
Answer: construction supplies, Amazon. fabricators, tile, marble, granite, and woodworkers, and all associated construction suppliers are struggling to meet customer demand and are expanding. Essentially the wholesale sector and supply chain vendors who line the shelves and bays at the likes of Home Depot. It’s these companies and business segments that are the big winners right now and they are snatching up industrial spaces as they come available.
After weeks and months at home, all of those put off projects are now top of mind and topping today’s “to-do” lists. Driving demand for materials is this restored interest in tackling remodels and upgrades mobilizing millions of people into local businesses and loading up their SUVS to get started. E-commerce businesses, as a result of online shopping, are also on the hunt for industrial space. Amazon has unilaterally scooped up millions of square feet with their expansion of distribution centers to meet Prime demand for next day goods.
Sticker Shock
The consumer frenzy has wholesale businesses bursting at the seams and desperate to find bigger spaces and more locations. As a result of the limited supply of industrial space is the classic increase in price. Just as automotive scarcity is driving up the prices on cars, the same applies to real estate. Industrial sticker shock has caught many by surprise. We’re seeing a hefty increase in cost per square foot. For example, back in 2019 prices for industrial properties in North County San Diego were selling at an average of $186 per square foot. As of the start of the 4th quarter here in 2021, the average sale price per square foot is up to $230. San Diego County as whole has a 3.4% vacancy rate and market sale prices of $286 per square foot. In the last 12 months, San Diego County Industrial sales totaled 525 properties as compared 348 properties in the previous 12-month period in 2020. This increase of 177 properties marks a 50.86% increase.
Limited inventory and no time to play poker.
Here today and gone tomorrow is no exaggeration. Buyers beware: to get your chip in the game, buyers must be pre-approved, prepared not only to pay full price, but be poised for bidding wars. Mirroring the residential housing market, there are a considerable amount of offers for nearly every space coming to market and an enormous number of properties are selling over-asking price. If you snooze, you will lose in this climate. Both buyers and sellers are highly motivated by shorter escrows as well.
Reasons to buy verses Lease:
The gift of great (low) interest rates makes the cost to lease a space almost equal to the cost of a loan if the buyer has the down payment to purchase a property. Now is a great time to make the move to purchase an owner-user building. From an investment perspective, the prospectus is equally compelling. The average sale price in San Diego County has gone up 13.97% over the last 12 months and there are no indications that this trend won’t hold for some time.
Other People’s Money
With the low interest rates still at all-time lows, it is a great time to use OPM (other people’s money) to purchase a property. Commercial real estate is still a supreme investment and commanding higher returns than putting the money in the bank. Owner-users should take advantage of an SBA loan to purchase a property with as low as 10% money down.
Contrary to the doom and gloom headlines from Washington D.C. the forecast is sunny and bright in the San Diego industrial market.
North County Snapshot
| North County Submarket | Inventory SF | Under Construction | 12 Month Net Absorption | Vacancy Rate | Market Rent | Market Sale Price/SF | Market CAP Rate |
| Carlsbad | 15,900,000 | 0 | 1,200,000 | 4.0% | $1.54 | $316 | 5.1% |
| Escondido | 8,400,000 | 0 | 84,200 | 1.9% | $1.31 | $278 | 5.1% |
| Oceanside | 10,400,000 | 0 | 68,000 | 2.3% | $1.17 | $257 | 5.2% |
| San Marcos | 9,100,000 | 0 | 343,000 | 5.5% | $1.26 | $252 | 5.2% |
| Vista | 14,500,000 | 0 | 370,000 | 6.5% | $1.18 | $252 | 5.1% |
| Total Average | 11,660,000 | 0 | 564,000 | 4.04% | $1.29 | $271 | 5.14% |
Article written by:
Michael Golden is a Principal with Lee & Associates in North San Diego County. He specializes in the sale and leasing of retail, investment, and industrial properties throughout San Diego County. Using a comprehensive and innovative approach in marketing initiatives, business strategy, and financing, Mr. Golden excels at growing and protecting the assets of his clients.