Economy Drives Industrial Sector

(To read more on the industrial market, click here.)

SAN DIEGO-Despite fears over rising oil prices, the economy is booming, helping drive the need for industrial space, according to at least one analyst. George Gramm, VP of client services with Grubb & Ellis/BRE Commercial, points to “more than 1.3 million sf of industrial space being absorbed in the first quarter of 2006″ as evidence of the sector’s continued strength.

Space eaters such as Biosite Inc. and LabCorp are setting the sector “on pace for a record year in San Diego County,” according to Gramm. So far in 2006, Biosite set the standard with its 350,000-sf corporate headquarters deal in the Sorrento Mesa submarket.

As for LabCorp, the firm signed a 10-year, $21.9 million lease for 109,780 sf at Sabre Springs Business Park. Steren Electronics also inked a long-term deal that topped the 100,000-sf mark.

According to Gramm, “industrial vacancy rates continued to fall during the first quarter.” All submarkets other than Carlsbad and Otay Mesa posted single-digit vacancies. North County was particularly strong as it reached a record low vacancy rate of 5.5%.

Gramm says the sector will remain strong throughout the year as industrial space users from the life sciences, communications technology, defense and transportation, computers and software industries are actively seeking deals in San Diego County.

A report by CB Richard Ellis sees the low unemployment rate as one of the fundamentals pushing the industrial sector. The unemployment rate stands at 4.1%.

According to Torto Wheaton Research, a division of CB Richard Ellis, “Over the last five years, total employment in the San Diego area has grown at an average annual rate of 1.2%” That number compares to a more meager 0.3% hike in employment nationally during that time.

According to the California Employment Development Department, San Diego County added an estimated 6,500 jobs in February. Government jobs were the fastest growing with 2,500 added to the local economy.

The leisure and hospitality industries also made gains, adding 1,400 jobs. Trade, transportation and utilities were the hardest hit, losing an estimated 1,100 jobs.

CB Richard Ellis’ research says that, “Relative to the US, the construction sector will post the best job performance over the next two years.” However, the head count on distribution and manufacturing employment is mixed. Over the last 12 months, distribution employment has grown by 1.0% while manufacturing has declined by 1.1%, according to Torto Wheaton Research.

As most industrial jobs continue to climb, Grubb & Ellis/BRE’s Gramm says to keep an eye on rental rates. Overall, the asking rate for industrial space stands at 93 cents per sf per month. That number “is expected to increase 3% to 6% in 2006 as it did in 2005,” Gramm says.