The Carlsbad industrial and office market has seen drastic change over the last few years. Between 2006 and 2008 Carlsbad saw a major surge in development in the industrial and office markets. The oversupply in these product types in areas like the Carlsbad Raceway Business Park, Bressi Ranch, and infill projects within the Carlsbad Research Center have had a negative looming effect on the Carlsbad market.
The oversupplied market, combined with a battered economy, made 2009 one of the worst years to be a real estate owner in Carlsbad. These factors forced Carlsbad vacancy rates to spike in 2009 with industrial vacancies peaking near 16 percent and office vacancies peaking at nearly 30 percent. In 2010, the pain set in and industrial sale prices plummeted 50 percent and lease rates fell 30 to 40 percent from peak years.
Everyone knows commercial real estate has taken a major hit in recent years but a lot of people and business owners don't realize that throughout 2010 and in the first few months of 2011, we have seen a vast increase in activity and improvement in our market.
The Carlsbad industrial market in 2010 showed positive signs with a little more than 400,000 square feet of product absorbed, dropping the vacancy rate to around 13 percent. This is positive change from 2009 when Carlsbad had a vacancy rate of 16 percent. If you look at San Diego County as a whole, in 2010 approximately 940,000 square feet was absorbed, which is a great sign when you compare it to 2009 when we saw negative absorption of 4,150,000 square feet.
The office market also showed some signs of improvement. The entire county absorbed a little more than 1,000,000 square feet in 2010, compared to 2009 when tenants returned 1,400,000 square feet back to the market. In 2010 the Carlsbad office market broke even with almost no negative or positive absorption — a vast improvement from previous years.
The surge in activity has mainly been price driven. Many tenants who have weathered the recession have taken advantage of the reduced lease rates. There are some very good economic opportunities in the market. Landlords are offering concessions such as free rent, moving allowances and tenant improvement dollars in addition to a reduced lease rate. In the office sector, we are seeing some tenants lock in five-year lease terms while receiving 6-9 months of free rent, bringing the effective rents for prominent Class A office space well below $2/sf. Some of the industrial projects we represent in Carlsbad are offering first-year tenant incentives of lease rates in the $0.50/sf range, which was unheard of just a year ago.
On the for sale side, the good deals are very tough to find. There is pent-up demand from owner-users and investors looking to buy good deals in both the office and industrial market. There is still a lot of product on the market which is overpriced and has been sitting there for a long time. Some of these developers have deep pockets and can afford to sit on their product for years and wait to get their price. The product that is priced aggressively is moving very quickly. We are seeing some bank-owned deals and a few short-sale opportunities that have multiple offers on them before going into escrow. The industrial buildings that are moving well are selling at prices in the $89-$130/sf range, depending on location and office build-out. Owner-user finished office buildings in Carlsbad are selling at prices ranging from $150-$200/sf, which are well below replacement costs.
Judging by all of the real estate signs posted on every other building in business parks throughout the county, one would think that no one is leasing or buying anything. But vacancy rates are slowly decreasing and the well priced deals are getting snatched up. We anticipate the market to show more signs of improvement with continued positive absorption throughout 2011. The speed of recovery in the San Diego office and industrial market will depend largely on the speed of recovery in the U.S economy and overall job growth in San Diego.
There is an unprecedented amount of opportunity out there and tenants and buyers should take advantage of the current market conditions. The deals are hard to find and they will not last forever so interested tenants and buyers should seek the expertise of a qualified commercial real estate broker.
For more information, contact Isaac Little with Lee & Associates at 760-929-7862 or [email protected].
The oversupplied market, combined with a battered economy, made 2009 one of the worst years to be a real estate owner in Carlsbad. These factors forced Carlsbad vacancy rates to spike in 2009 with industrial vacancies peaking near 16 percent and office vacancies peaking at nearly 30 percent. In 2010, the pain set in and industrial sale prices plummeted 50 percent and lease rates fell 30 to 40 percent from peak years.
Everyone knows commercial real estate has taken a major hit in recent years but a lot of people and business owners don't realize that throughout 2010 and in the first few months of 2011, we have seen a vast increase in activity and improvement in our market.
The Carlsbad industrial market in 2010 showed positive signs with a little more than 400,000 square feet of product absorbed, dropping the vacancy rate to around 13 percent. This is positive change from 2009 when Carlsbad had a vacancy rate of 16 percent. If you look at San Diego County as a whole, in 2010 approximately 940,000 square feet was absorbed, which is a great sign when you compare it to 2009 when we saw negative absorption of 4,150,000 square feet.
The office market also showed some signs of improvement. The entire county absorbed a little more than 1,000,000 square feet in 2010, compared to 2009 when tenants returned 1,400,000 square feet back to the market. In 2010 the Carlsbad office market broke even with almost no negative or positive absorption — a vast improvement from previous years.
The surge in activity has mainly been price driven. Many tenants who have weathered the recession have taken advantage of the reduced lease rates. There are some very good economic opportunities in the market. Landlords are offering concessions such as free rent, moving allowances and tenant improvement dollars in addition to a reduced lease rate. In the office sector, we are seeing some tenants lock in five-year lease terms while receiving 6-9 months of free rent, bringing the effective rents for prominent Class A office space well below $2/sf. Some of the industrial projects we represent in Carlsbad are offering first-year tenant incentives of lease rates in the $0.50/sf range, which was unheard of just a year ago.
On the for sale side, the good deals are very tough to find. There is pent-up demand from owner-users and investors looking to buy good deals in both the office and industrial market. There is still a lot of product on the market which is overpriced and has been sitting there for a long time. Some of these developers have deep pockets and can afford to sit on their product for years and wait to get their price. The product that is priced aggressively is moving very quickly. We are seeing some bank-owned deals and a few short-sale opportunities that have multiple offers on them before going into escrow. The industrial buildings that are moving well are selling at prices in the $89-$130/sf range, depending on location and office build-out. Owner-user finished office buildings in Carlsbad are selling at prices ranging from $150-$200/sf, which are well below replacement costs.
Judging by all of the real estate signs posted on every other building in business parks throughout the county, one would think that no one is leasing or buying anything. But vacancy rates are slowly decreasing and the well priced deals are getting snatched up. We anticipate the market to show more signs of improvement with continued positive absorption throughout 2011. The speed of recovery in the San Diego office and industrial market will depend largely on the speed of recovery in the U.S economy and overall job growth in San Diego.
There is an unprecedented amount of opportunity out there and tenants and buyers should take advantage of the current market conditions. The deals are hard to find and they will not last forever so interested tenants and buyers should seek the expertise of a qualified commercial real estate broker.
For more information, contact Isaac Little with Lee & Associates at 760-929-7862 or [email protected].