As a result of efforts to market the city's attributes to developers, businesses and residents, in addition to growth in San Diego County, Carlsbad's commercial real estate market has flourished, and will continue to do so over the next year.
According to commercial real estate specialists at Grubb & Ellis|BRE Commercial, market indicators remain positive in Carlsbad, despite word of a slowing economy and high construction costs. Vacancy is trending down while absorption (the rate at which vacant space is either leased or sold) and lease and rental rates are rising in all sectors, including office, industrial and retail, indicating that demand remains strong.
"In the industrial sector, vacancy and absorption numbers are the best that we've seen over the last five years," said Industrial Specialist Todd Davis. "Direct vacancy today stands at about 9 percent when it was as high as 15 percent in 2001. Today's year-to-date positive net absorption of 220,000 square feet is more than Carlsbad has absorbed for the previous four years combined."
It is this demand that has driven the current construction activity.
"Nearly a half million square feet of office space is under construction in Carlsbad despite over three million square feet of existing inventory," said Office Specialist Norm Kerlin. "This reflects the confidence that both owners and developers continue to feel in Carlsbad."
Grubb & Ellis|BRE Commercial's brokers note that demand is so strong that we are seeing a large number of buildings in both office and industrial that are being built on a speculative basis, meaning there is no end user in mind when construction begins. Although this trend may alarm some, continued low vacancy rates indicate these buildings are quickly finding occupants and that demand is keeping up with supply.
Davis adds there are several projects that do have significant pre-commitments, but those that don't are often leased or sold before construction is complete.
In the office sector, pricing remains relatively cheap and rental rates low when compared to cities such as Del Mar and Rancho Bernardo. Carlsbad also still has available large blocks of contiguous space, which adds to the city's desirability.
"Also driving office construction is the rise in residential construction," said Office Specialist Justin Halenza. "Additional executive housing is enticing more corporate decision makers to live in the area, and as a result, many are moving their businesses there as well to avoid commutes south."
As San Diego County is built out and traffic remains congested, Carlsbad will continue to be a positive alternative for developers, business owners and residents. In fact, for some developers, Carlsbad is already its first choice given its close proximity to both San Diego and Orange County business markets.
The industrial sector also continues to see strong activity, the majority of which is in the construction of small (under 15,000 square feet) R&D buildings, which are buildings that have a higher ratio of office space to product/assembly space. Of the 370,000 square feet under construction this year, nearly 175,000 square feet has been absorbed year-to-date.
Three projects that reflect this current trend include Bressi Ranch, Opus Point at the Carlsbad Raceway and Greyhawk at The Palomar Forum. All large developments, upwards of 200,000 square feet total, contain industrial/R&D buildings ranging in size from 4,000-60,000 square feet for sale or lease.
Demand is also high in the retail sector, pushing vacancy to all-time lows. As of mid-year, 94,000 square feet had been absorbed, leaving 36,000 square feet of space remaining, a 1.1 percent vacancy rate. However, despite demand, there is no new construction underway due to the lack of land and high construction costs. As the supply of land in existing and new retail centers continue to shrink in Carlsbad and countywide, infill and redevelopment have become the only viable alternatives.
While the market remains positive, high construction costs do pose challenges to developers and contribute to higher lease rates for tenants. Construction costs have doubled in the last five years, impacting both labor and materials. Kerlin points out this is a global problem, as there is high demand worldwide for materials and quality labor.
"Petroleum drives every aspect of construction, from asphalt to steel," Halenza said. "We anticipate costs remaining high as a result of activities on the world stage, but while other cities may feel the crunch, activity in Carlsbad will continue to remain positive."
Several new Class A office projects under construction demonstrate that demand is not only strong, but that quality is also in demand.
Ventana Real, a 226,000-square-foot project, 75,000-square-foot Concourse One at The Palomar Forum and the 75,000-square-foot Kelly Corporate Center will all incorporate state-of-the-art design and technology to provide tenants a first-class business environment.
"Each generation of office buildings is an improvement over the last," Kerlin said. "Everyone wants to build nicer buildings and this will continue with each generation. Owners are confident, which we anticipate will mean continued positive activity for Carlsbad."
Grubb & Ellis|BRE Commercial is one of Southern California's leading privately-held commercial real estate brokerage firms. Based in San Diego and a leader in market coverage, Grubb & Ellis|BRE Commercial represents approximately 30 million square feet of industrial, office and retail properties throughout the region. For more information about Grubb & Ellis|BRE Commercial, please visit www.brecommercial.com and www.grubb-ellis.com to learn more about the Grubb & Ellis Company.
According to commercial real estate specialists at Grubb & Ellis|BRE Commercial, market indicators remain positive in Carlsbad, despite word of a slowing economy and high construction costs. Vacancy is trending down while absorption (the rate at which vacant space is either leased or sold) and lease and rental rates are rising in all sectors, including office, industrial and retail, indicating that demand remains strong.
"In the industrial sector, vacancy and absorption numbers are the best that we've seen over the last five years," said Industrial Specialist Todd Davis. "Direct vacancy today stands at about 9 percent when it was as high as 15 percent in 2001. Today's year-to-date positive net absorption of 220,000 square feet is more than Carlsbad has absorbed for the previous four years combined."
It is this demand that has driven the current construction activity.
"Nearly a half million square feet of office space is under construction in Carlsbad despite over three million square feet of existing inventory," said Office Specialist Norm Kerlin. "This reflects the confidence that both owners and developers continue to feel in Carlsbad."
Grubb & Ellis|BRE Commercial's brokers note that demand is so strong that we are seeing a large number of buildings in both office and industrial that are being built on a speculative basis, meaning there is no end user in mind when construction begins. Although this trend may alarm some, continued low vacancy rates indicate these buildings are quickly finding occupants and that demand is keeping up with supply.
Davis adds there are several projects that do have significant pre-commitments, but those that don't are often leased or sold before construction is complete.
In the office sector, pricing remains relatively cheap and rental rates low when compared to cities such as Del Mar and Rancho Bernardo. Carlsbad also still has available large blocks of contiguous space, which adds to the city's desirability.
"Also driving office construction is the rise in residential construction," said Office Specialist Justin Halenza. "Additional executive housing is enticing more corporate decision makers to live in the area, and as a result, many are moving their businesses there as well to avoid commutes south."
As San Diego County is built out and traffic remains congested, Carlsbad will continue to be a positive alternative for developers, business owners and residents. In fact, for some developers, Carlsbad is already its first choice given its close proximity to both San Diego and Orange County business markets.
The industrial sector also continues to see strong activity, the majority of which is in the construction of small (under 15,000 square feet) R&D buildings, which are buildings that have a higher ratio of office space to product/assembly space. Of the 370,000 square feet under construction this year, nearly 175,000 square feet has been absorbed year-to-date.
Three projects that reflect this current trend include Bressi Ranch, Opus Point at the Carlsbad Raceway and Greyhawk at The Palomar Forum. All large developments, upwards of 200,000 square feet total, contain industrial/R&D buildings ranging in size from 4,000-60,000 square feet for sale or lease.
Demand is also high in the retail sector, pushing vacancy to all-time lows. As of mid-year, 94,000 square feet had been absorbed, leaving 36,000 square feet of space remaining, a 1.1 percent vacancy rate. However, despite demand, there is no new construction underway due to the lack of land and high construction costs. As the supply of land in existing and new retail centers continue to shrink in Carlsbad and countywide, infill and redevelopment have become the only viable alternatives.
While the market remains positive, high construction costs do pose challenges to developers and contribute to higher lease rates for tenants. Construction costs have doubled in the last five years, impacting both labor and materials. Kerlin points out this is a global problem, as there is high demand worldwide for materials and quality labor.
"Petroleum drives every aspect of construction, from asphalt to steel," Halenza said. "We anticipate costs remaining high as a result of activities on the world stage, but while other cities may feel the crunch, activity in Carlsbad will continue to remain positive."
Several new Class A office projects under construction demonstrate that demand is not only strong, but that quality is also in demand.
Ventana Real, a 226,000-square-foot project, 75,000-square-foot Concourse One at The Palomar Forum and the 75,000-square-foot Kelly Corporate Center will all incorporate state-of-the-art design and technology to provide tenants a first-class business environment.
"Each generation of office buildings is an improvement over the last," Kerlin said. "Everyone wants to build nicer buildings and this will continue with each generation. Owners are confident, which we anticipate will mean continued positive activity for Carlsbad."
Grubb & Ellis|BRE Commercial is one of Southern California's leading privately-held commercial real estate brokerage firms. Based in San Diego and a leader in market coverage, Grubb & Ellis|BRE Commercial represents approximately 30 million square feet of industrial, office and retail properties throughout the region. For more information about Grubb & Ellis|BRE Commercial, please visit www.brecommercial.com and www.grubb-ellis.com to learn more about the Grubb & Ellis Company.