Q1 2012 Industrial Report

Industrial Report
North San Diego County

1st Quarter 2012
PREPARED BY: COLLIERS INTERNATIONAL
Adam Molnar 5901 Priestly Drive, Suite 100
Greg Lewis Carlsbad, CA 92008
Tucker Hohenstein Fax 760 438 8925
Mike Erwin www.colliers.com/carlsbad

Q1 2012 | INDUSTRIAL

NORTH COUNTY
AT A GLANCE

OVERVIEW
The North San Diego County industrial market is largely decentralized and comprised of
five cities including Carlsbad, Escondido, Oceanside, San Marcos and Vista. Situated 35
miles north of downtown San Diego and 52 miles south of John Wayne Airport in Orange
Oceanside County, the coastal location is a major factor in the area’s appeal to corporate users and
Vista
its 826,985 residents.

Carlsbad
San Escondido The industrial market consists of approximately 52.3 million square feet. By comparison,
Marcos
Ocean the total San Diego industrial market is 188.3 million square feet. North County represents
27% of the total. For Q1 2012 North County vacancy was 10.6%. The vacancy rate
is decreasing as 172,000 SF of positive net absorption occurred. The following table
MARKET INDICATORS summarizes the inventory and vacancy by submarket:

Q1 Q2
2012 2012 (forecast)
Submarket Buildings Total Inventory Vacant SF Vacancy Rate
VACANCY Carlsbad 485 15,025,194 2,165,696 14.4%
Escondido 637 7,183,097 445,352 6.5%
NET ABSORPTION
Oceanside 396 8,038,265 1,246,094 15.5%
CONSTRUCTION San Marcos 489 8,710,664 604,631 6.9%
RENTAL RATE Vista 530 13,374,822 1,081,203 8.1%
Total 2,537 52,333,280 5,566,778 10.6%
LEASE CONCESSIONS

North San Diego County is well known for its highly skilled labor force, excellent
transportation network, pro-growth business environment, significant Federal
Government presence, desirable vacation destination including world class beaches,
resorts, golf venues, and abundant employee housing.
INDUSTRIAL/R&D VACANCY RATES
Q1 2012
INDUSTRIAL/R&D VACANCY RATES CARLSBAD HISTORICAL MARKETDiego County
The North San TRENDS industrial market is home to a diversified mix of users
VISTA HISTORICAL MARKET TRENDS
Q1 2012
including defense, telecommunications, software, medical manufacturing, golf and leisure
Carlsbad 14.4%
Escondido 6.5%
Coca-Cola Isis Pharmaceuticals DJO, Inc.
Medtronic Life Technologies Linear
Oceanside 15.5%
Titleist Golf Cobra / Puma Golf Killion Industries
San Marcos 6.9% ViaSat TaylorMade Golf Jeld-Wen Windows and Doors
Vista 8.1% Covidien Denso Wireless Sumitomo Electric
North County 10.6% Abbott Labs US Foods McCain, Inc.
Genentech Philips Respironics Directed Electronics
0% 5% 10% 15% 20%
Callaway Golf Thomson Reuters GIA
L-3 Communications Rockwell Collins Hunter Industries
SAIC John Deere Watkins Manufacturing
OCEANSIDE HISTORICAL MARKET TRENDS SAN MARCOS HISTORICAL MARKET TRENDS

www.colliers.com/carlsbad

AT A GLANCE | Q1 2012 | INDUSTRIAL | NORTH COUNTY

ACTIVITY
Land appears to have reversed its downward NORTH COUNTY HISTORICAL MARKET TRENDS
slide with the sale of 28 acres in Ocean
Ranch, Oceanside to US Foods for $11.50/ 1,500 14%

SF. To help put this price improvement in 12%
1,000
perspective, a year earlier the same property 10%
was purchased as a short-sale by a local

Vacancy Rate
SF (000s)
500
8%
investor/developer for $7.23/SF. Supply of
industrial land, particularly large contiguous 0
6%

sites in North County, is limited. It will not take 4%
much in the way of demand to see further -500
2%
increases in land prices.
-1,000 0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
The sale of several distressed properties Q1
during Q1 pulled the median sale price down
Net Absorption New Supply Vacancy
to $76.50/SF. As distressed real estate is
cleared from the market look for sale prices
to gradually increase and good quality product to command a sizable premium over the Q1 median price. Many
“would be” sellers have chosen to lease rather than compete with distressed opportunities. This has resulted in
the supply of properties available for lease out numbering those for sale by a ratio of 6 to 1 in the 25,000-50,000
square foot range.

It was a positive sign to see investors, owner-occupiers and tenants active during Q1. Investors purchased
two vacant buildings located in Vista. Pacifica Enterprises bought 65,000 square feet 1081 Poinsettia for $58/
SF, while SR Commercial purchased 39,000 square feet at 2390 Oak Ridge for $69.57/SF. Owner occupiers
purchased four buildings for a total of 113,449 square feet with prices ranging between $65.78/SF and $127.90/
SF. Significant tenant transactions included; La Cantina Doors leasing 67,000 square feet in Oceanside, PODS
renewing their lease of 64,000 square feet in Carlsbad, Astro Converters renewing their lease of 25,000 square
feet in San Marcos and Balboa Cal Inc. occupying 23,000 square feet in Vista.

FORECAST
There are several transactions underway at the end of Q1 that will likely help boost activity when they are
completed during Q2. Look for investors and tenants to lead the way, while owner-occupiers find it diﬃcult to
locate good quality properties or are reluctant to fill the price gap that has been created by recent distressed
sales. Lease rates will move sideways in the near term, but should begin to increase later in the year as vacancy
continues its slow decline. The current supply of spaces between 25,000-50,000 square feet for lease will force
landlords to complete aggressively for these tenants.

New speculative construction while being analyzed is still at least 24 months away. Filling the gap will be an
occasional build-to-suit if companies are unable to find a desirable existing alternative.

This document has been prepared by Colliers International for advertising and general information only. Colliers
prepared by ADAM MOLNAR, GREG LEWIS International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding
the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party
TUCKER HOHENSTEIN & MIKE ERWIN, 760 438 8950 should undertake their own inquiries as to the accuracy of the information. Colliers International excludes
unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes
all liability for loss and damages arising there from.


CARLSBAD
AT A GLANCE

OVERVIEW
This year is oﬀ to a slow start in Carlsbad with a meager 14,650 square feet of positive
absorption in 1Q 2012. The overall vacancy rate for Industrial/R&D product sits at 14.41%
with industrial product continuing to outperform R&D (12.51% and 16.17% respectively).
Oceanside There is no new construction underway or in the planned stage.
Vista

ACTIVITY
San The limited activity in the leasing market was mostly concentrated in the 10,000 to
Carlsbad Marcos 20,000 square foot segment with companies like Scratch Media and Iris International
Ocean
committing to space in Carlsbad. Renewals remain prevalent as current Landlords tend
to have a leg up on the competition due to prohibitive moving and Tenant Improvements
costs associated with a new location. Examples of this during 1Q 2012 are PODS who
MARKET INDICATORS
renewed in 64,541 SF and Luxtera who downsized and renewed in 32,510 SF. There
Q1 Q2 were no significant sales transactions in 1Q 2012 in Carlsbad.
2012 2012 (forecast)

VACANCY
FORECAST
Investment sales appear to be on the rebound in Carlsbad with multiple large Industrial/
NET ABSORPTION R&D projects expected to trade hands in 2Q 2012. The remaining shortage of large
blocks of contiguous, functional space above 75,000 SF suggests that companies with
CONSTRUCTION
forward thinking and the desire to consolidate operations will continue to explore Build
RENTAL RATE to Suit options. Overall activity and demand in the market appear to be up and supply is
expected to diminish, meaning that Landlords should benefit from a slight uptick in rental
LEASE CONCESSIONS rates with no new product in the pipeline.

INDUSTRIAL/R&D VACANCY RATES CARLSBAD HISTORICAL MARKET TRENDS VISTA HISTORICAL MARKE
Q1 2012
700 16%

INDUSTRIAL/R&D VACANCY RATES 600 14%
Q1 2012
INDUSTRIAL/R&D VACANCY RATES CARLSBAD 500
HISTORICAL MARKET TRENDS 12%
VISTA HISTORICAL MARKET TRENDS
Q1 2012
400 10%
Vacancy Rate
SF (000s)

Carlsbad
Carlsbad 14.4%
300 8%
Escondido 6.5% 200 6%
Oceanside 15.5% 100 4%

San Marcos 6.9% 0 2%

Vista 8.1% -100 0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
North County 10.6% Q1

0% 5% 10% 15% 20% Net Absorption New Supply Vacancy

OCEANSIDE HISTORICAL MARKET TRENDS SAN MARCOS HISTORICAL


El C
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AT A GLANCE | Q1 2012 | INDUSTRIAL | CARLSBAD Ave
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Carlsbad
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TRANSACTION ACTIVITY - Q1 2012
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# PROPERTY Av
NAME/ADDRESS
iar BUYER TYPE SIZE (SF) SALE PRICE PRICE/SF
aP
kw
There were
Park Hyatt y
no building sales larger than 15,000 SF during Q1
Aviara Resort

LEASING ACTIVITY

# PROPERTY NAME/ADDRESS TENANT NAME SIZE (SF) TERM EFF RATE/SF
1 3254 GreyHawk Court Scratch Media 12,835 48 months $0.91 MG
2 1891 Rutherford Road Iris International 20,000 84 months $1.53 NNN
3 2320 Camino Vida Roble Luxtera, Inc. (renewal) 32,510 43 months $0.98 NNN
4 2858 Loker Avenue PODS 64,541 84 months $0.70 NNN



ESCONDIDO
AT A GLANCE

OVERVIEW
The Escondido Industrial Market had minimal activity during the 1Q 2012, but continues to
have the lowest vacancy rate of any city in North San Diego County at 6.5%. There is no
new speculative industrial building or ﬂex construction underway at this time. We most
Oceanside
Vista
likely will see Hamann Construction break ground on Cor-O-Van’s ~100,000 sf build-to-
suit in 2Q 2012. The new Palomar Medical Center under construction on a 56 acre site
in the Escondido Research and Technology Center continues to take shape with a target
San Escondido
Carlsbad Marcos opening of 3Q 2012.
Ocean

ACTIVITY
There were no significant sale or lease transactions in Escondido during 1Q 2012, but
MARKET INDICATORS there was good lease activity in the multi-tenant parks with 24 lease transactions ranging
Q1 Q2
between 1,000 - 5,000 square feet. Lease rates remained steady for 1Q 2012; sales
2012 2012 (forecast) activity was minimal with only three transactions, all below $500,000.

VACANCY FORECAST
NET ABSORPTION
The road ahead is bright for Escondido. With a healthy vacancy rate, there will be upward
pressure on rental rates and sale prices in 2012. The economy is showing signs of
CONSTRUCTION recovery with an increase in employment which will drive demand for industrial space.
One of our clients is tentatively planning on breaking ground on a new speculative, for
RENTAL RATE
lease industrial project in Escondido which is something we have not seen for several
LEASE CONCESSIONS years.

ESCONDIDO HISTORICAL MARKET TRENDS
S NORTH COUNTY NET ABSOR
Q1 2012
300 10%
INDUSTRIAL/R&D VACANCY RATES CARLSBAD HISTORICAL MARKET TRENDS VISTA HISTORICAL MARKET TRENDS
Q1 2012 9%
200
Carlsbad 8%
14.4% 5-Yr. Avg. = 91,36
100 7%
Escondido
Escondido 6.5%
Vacancy Rate
SF (000s)

6%
0
Oceanside 15.5% 5%
-100
4%
San Marcos 6.9%
-200 3%
Vista 8.1% 2%
-300
1%
North County 10.6%
-400 0%
0% 5% 10% 15% 20% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Q1


NORTH COUNTY HISTORICAL MARKET TRENDS


AT A GLANCE | Q1 2012 | INDUSTRIAL | ESCONDIDO

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SALES ACTIVITY

# PROPERTY NAME/ADDRESS BUYER TYPE SIZE (SF) SALE PRICE PRICE/SF
No building sales above 10,000 square feet
LEASING ACTIVITY

1 302 Enterprise, Suite A Nexsan 13,772 19 months $0.63 Gross



OCEANSIDE
AT A GLANCE

INDUSTRIAL/R&D VACANCY RATES CARLSBAD HISTORICAL MARKET TRENDS VISTA
Q1 2012

OVERVIEW
While Oceanside still maintains the highest vacancy rate in North County at 15.46% the
115,069 SF of positive net absorption during Q1 2012 was the best quarterly performance
since Q2 2008. This extremely positive indicator signals the long anticipated recovery is
Oceanside underway.
Vista

With just under 1.2m SF of vacant industrial space available there are numerous newer
San and older properties of all sizes available to choose from including multi-tenant, free-
Carlsbad Marcos standing and larger manufacturing and warehouse distribution facilities.
Ocean

ACTIVITY
Industrial sale transactions OCEANSIDE HISTORICAL MARKET TRENDS
S SAN M
MARKET INDICATORS
were highlighted by the 28 800 20%
Q1
2012
Q2
2012 (forecast)
acre user purchase by US 18%
600
Foods in the Ocean Ranch 16%

VACANCY
business park which closed in 400
14%

Vacancy Rate
SF (000s)

12%
March for $11.50 SF. Long term 200 10%
NET ABSORPTION plans include the construction 8%
0
of 400,000 – 500,000 SF of 6%
CONSTRUCTION 4%
food storage and distribution -200
2%
RENTAL RATE facilities replacing multiple -400 0%
lease properties in Vista as 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Q1
LEASE CONCESSIONS leases term out.

Industrial building sales
included the Gilead Sciences purchase of 35,856 SF at 4039 Avenida de la Plata. Gilead
owns the property next door and this expansion includes plans for a major renovation
of the property and a substantial capital improvement investment expanding their life
INDUSTRIAL/R&D VACANCY RATES sciences business in the Oceanside area.
Q1 2012
INDUSTRIAL/R&D VACANCY RATES CARLSBAD HISTORICAL MARKET TRENDS VISTA HISTORICAL MARKET TRENDS
Q1 2012 Lease transaction activity was strong this quarter and included a 66,780 SF lease in La
Carlsbad 14.4% Pacifica in Ocean Ranch with La Cantina Doors, a tenant that expanded and relocated
Escondido 6.5%
from the Vista market. Four other leases between 12,000 and 18,000 were completed
showing momentum in medium size tenant activity which is a very positive factor.
Oceanside
Oceanside 15.5%
San Marcos 6.9% FORECAST
Vista 8.1%
Oceanside will continue to see positive net absorption this coming quarter and for the
remainder of the year. All economic indicators are trending positive and commercial
North County 10.6% real estate oﬃces are all reporting the best activity in years. Overall, deals are still taking
0% 5% 10% 15% 20% a long time to process, landlords are making concessions to keep existing tenants and
lower building sale prices and attractive interest rates are making user purchases very
aﬀordable.


AT A GLANCE | Q4 2011 | INDUSTRIAL | OCEANSIDE

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Oceanside Blvd

Sprinter Light
Rail Line

SALES ACTIVITY

# PROPERTY NAME/ADDRESS BUYER TYPE SIZE (SF) SALE PRICE PRICE/SF
1 4039 Avenida de la Plata Gilead Services / User 35,856 $4,586,000 $127.90
2 Ocean Ranch Lots 27 & 28 U.S. Foods 27.96 Acres $14,000,000 $11.50
LEASING ACTIVITY

3 2817 Ocean Ranch Boulevard La Cantina Doors 66,780 60 months $0.55/NNN
4 398 Via El Centro Windigo International 12,000 36 months $0.50/G
5 3801 Ocean Ranch Blvd Star Metal Plating 12,450 60 months $0.49/NNN
6 2612 Temple Heights Dr Apical Industries 18,160 60 months $0.55/G
7 1353 Rocky Point Dr Dixon Scientific 18,911 38 months $0.64/G



SAN MARCOS
AT A GLANCE

OVERVIEW
The San Marcos industrial market positive absorption was 36,664 square feet and the
quarter ended with a vacancy rate of 6.9%. This is the second best in North County
following only Escondido at 6.5%. The positive absorption was on par with some of the best
Oceanside quarters in the last three years and now San Marcos has posted three consecutive quarters
Vista
of net absorption which it hasn’t done since the recession started.
San Escondido
Carlsbad Marcos ACTIVITY
Ocean
Industrial building sale activity was light with just one sale closing in the quarter. Metro
Western Sign & Awnings purchased a 24,128 square foot distressed property with an
outside yard area at 261 South Pacific Street from the Small Business Administration.
MARKET INDICATORS
Q1
AD HISTORICAL MARKET TRENDS Q2 LeasingHISTORICAL MARKET TRENDS between 13,000 and 25,000 square feet the largest
VISTA
activity consisted of 3 leases
2012 2012 (forecast) of which was a renewal. Leasing velocity is up with several transactions in the market that
should close in the next 30-60 days.
VACANCY

NET ABSORPTION
FORECAST
CONSTRUCTION We expect to see a continued reduction in supply in the market as space is taken down and
no new product is added to the market. Activity in all product types including multi-tenant,
RENTAL RATE manufacturing and warehouse distribution is up significantly. As the economy continues
LEASE CONCESSIONS
to improve the nascent recovery should benefit owners of industrial property in this core
market .

DE HISTORICAL MARKET TRENDS SAN MARCOS HISTORICAL MARKET TRENDS
Q1 2012
INDUSTRIAL/R&D VACANCY RATES CARLSBAD HISTORICAL MARKET TRENDS
300 VISTA HISTORICAL MARKET TRENDS
9%
Q1 2012
8%
Carlsbad 14.4% 200
7%
Escondido 6.5% 100 6%
Vacancy Rate
SF (000s)

5%
Oceanside 15.5% 0
4%
San Marcos
San Marcos 6.9% -100 3%

Vista 8.1% 2%
-200
1%
North County 10.6%
-300 0%
0% 5% 10% 15% 20% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Q1




Q1 2012 Industrial Report

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