Rent growth in the San Diego industrial market shows no signs of slowing so far in 2021. Driven by heightened demand from logistics users and life sciences firms expanding across the region over the past year, annual rent growth has reached its highest point in two years, at 5.7%.
Year to date, rents in the logistics and flex sectors are up 3% already, an annualized rate of more than 7%, while rents in specialized inventory have grown by 2.1% in the early going of 2021. On a year-over-year basis, rents in the logistics sector, which includes distribution and warehousing facilities, are up 6.5%, while flex rents have grown by 5.2%.
Otay Mesa continues to lead the region in rent performance, with rents growing 7.3% year over year, and logistics inventory is leading that surge with 8.1% annual growth. The heavy speculative pipeline in the submarket has done little to dent recent momentum. There’s 1.8 million square feet of available space in the pipeline, although demand has risen to fill new buildings as they deliver. That was the case in the first quarter of 2021, when three buildings at Majestic Realty’s Majestic Sunroad Center, all built on a speculative basis, delivered and were fully occupied by the end of the quarter.
In San Diego’s core life science node in the Sorrento Mesa area and in Torrey Pines, rents have grown by 3.6% and 3%, respectively, year to date, in flex inventory.
That industrial sector has been particularly hot as biotech firms continue seeking out space to expand into and judging by recent venture capital investment in San Diego, the faucet doesn’t appear to be shutting off any time soon. Roughly $2.4 billion was raised by San Diego start-ups during the first quarter of 2021, according to Connect/San Diego Venture Group, with several local biotech firms raising more than $100 million. That was a 200% increase compared to the first quarter of 2020. Last year, CUE Health raised $100 million to help accelerate the development of rapid COVID-testing kits. That was followed by the firm receiving a nearly $500 million award from the Department of Defense, both of which allowed the firm to expand into an additional 200,000 square feet in Vista in 2021.
When comparing rent growth among building sizes, bigger appears to be better. Annual rent growth for industrial and flex facilities larger than 200,000 square feet is 6.6%, and it’s 6.4% for buildings between 100,000 to 200,000 square feet. The next smaller slice, buildings between 50,000 and 100,000 square feet, have recorded rent growth above the region’s average at 6.1%. Rent growth in smaller buildings below 50,000 square feet, often manufacturing facilities occupied by local firms, have the lowest rent growth, with year-over-year growth of 5.1%.