By Joshua Ohl
CoStar Analytics
July 9, 2024
New Lab Buildings Spur Leasing Activity During the Second Quarter
New industrial leasing volume during the second quarter in San Diego reached its highest level since the start of 2023, with more than 2.2 million square feet in transactions. That number will continue to rise as CoStar research collects additional lease transactions.
The dominant tranche of leasing activity is still taking place in small-bay industrial and flex buildings. Deals under 10,000 square feet accounted for 39% of leasing volume during the second quarter, right in line with the percentage from 2023 and 10 percentage points above the 2021 and 2022 averages.
North and South County market participants have mentioned that filling requirements for small-bay occupiers is driving industrial demand across the region, and most of these spaces, from the South Bay to Vista, are leasing in under three months when they become available. Tenants are signing short-term, three-year leases for these spaces with minimal concessions.
Demand has increased at the top of the market for the largest spaces, if only marginally. Three leases were executed for spaces above 100,000 square feet during the second quarter, representing 16% of new leasing volume. That was the same as the first quarter and 8 percentage points above 2023’s average. Between 2021 and 2022, those deals above 100,000 square feet represented 25% of new leasing volume.
Of the three deals signed during the second quarter, two were for new flex/lab properties in Sorrento Mesa and Torrey Pines. Several of the largest lab requirements have been converted to realized deals in 2024, following Pfizer’s 230,000-square-foot lease at Torrey View in the first quarter. Local brokers have suggested that there are still several 100,000-square-foot-plus requirements among life science firms in San Diego.
The largest industrial lease was for 116,000 square feet in Kearny Mesa, where a sublessee took Amazon’s former space.
However, only one deal during the second quarter was signed for new space. A firm leased 59,000 square feet at Sanyo Logistics Center in Otay Mesa, which was completed earlier this year. That was only the third transaction at new industrial space in 2024, with two signed in the first quarter in Chula Vista and Otay Mesa, totaling 150,000 square feet.
Roughly 3.1 million square feet of available new space is in the pipeline and has been completed since last year. Stakeholders are concerned that the longer that space remains unoccupied, the longer it will take for rent growth to reverse course and begin accelerating.
San Diego has always been a small-bay market, and those properties will likely continue driving demand until confidence returns among large occupiers.
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