San Diego’s Industrial Market Reaches 10-Year High in Sublet Space
More Space Is Likely Coming
By Joshua Ohl
CoStar Analytics
March 10, 2023 | 1:32 P.M.
San Diego’s industrial vacancy rate has risen by 0.7% during the past 12 months to 3.8%. While still low from a historical perspective, beating the market's long-term average of 7.1%, it comes at a time when leasing velocity has moderated as concerns have spread about economic headwinds.
Part of that shift can be directly attributed to the rise in sublet space across the San Diego industrial market. It has spread across both the logistics and flex sectors locally. The amount available has reached its highest level in more than 10 years, at 2.8 million square feet.
Substantial spaces have been placed on the sublet market from Otay Mesa to Sorrento Mesa and from firms involved in manufacturing and distribution to high-tech and biotech.
At The Campus in Otay Mesa, Panasonic placed 170,000 square feet up for sublease in February and vacated the property. In Sorrento Mesa, Dexcom added more than 90,000 square feet and NuVasive put up 90,000 square feet at the beginning of 2023.
Toward the end of last year, Amazon added three buildings in San Diego to the sublease market, totaling more than 300,000 square feet, as the e-commerce giant followed through with cutting back its real estate footprint across the country.
One of the larger available sublet spaces in the area is at Callan Ridge in Torrey Pines. Healthpeak Properties is underway on a 185,000-square-foot lab campus for Turning Point Therapeutics that is scheduled to deliver at the end of 2023. However, the entire property has been put up for sublease with a term that runs through 2035. Although terms of the lease have not been disclosed, first-generation lab space in Torrey Pines often commands up to $7 per square foot on a triple-net basis.
That might not be the only new construction that is available for sublease.
Sorrento Therapeutics announced in February that it was filing for bankruptcy. It has since announced through a Worker Adjustment and Retraining Notice with the State of California that it was laying off 538 local employees due to a closure.
Healthpeak Properties is also underway on a 163,000-square-foot lab building for Sorrento Therapeutics at the Sorrento Gateway in Sorrento Mesa. That building is scheduled to complete in 2023 with a lease term that runs until 2039. The effective rent was above $6 per square foot, gross.
Sorrento Therapeutics occupies an existing footprint of more than 350,000 square feet in San Diego. While the firm has yet to announce plans for the likely reduction of its local real estate portfolio, there is an expectation that the majority of its space will be added to the sublet market. That would come after the firm concurrently extended all of its local leases by 15 years in 2022.
While more sublet availabilities on the market has provided additional options for tenants in search of space in a relatively low-vacancy environment, it’s worth monitoring the metric as economic concerns weigh on tenant decisions.