q4 2012 industrial report

Industrial ReportNorth San Diego County

4th Quarter 2012

PREPARED BY:

Adam Molnar

Greg Lewis

Tucker Hohenstein

Mike Erwin

COLLIERS INTERNATIONAL

5901 Priestly Drive, Suite 100

Carlsbad, CA 92008

Fax 760 438 8925

www.colliers.com/carlsbad


OVERVIEWAbsorption for Industrial/R&D product in Carlsbad got off to a strong start in 2012, only to taper off considerably in the second half as a result of back to back sluggish quarters. Nonetheless, absorption numbers managed to remain in the black by posting a slightly positive gain of 23,113 SF. The overall vacancy rate for Industrial/R&D continued to inch downward and fi nished the year at 13.55%, down from 14.14% one year ago. Carlsbad had a fairly robust year of leasing and sales volume in 2012 with 176,437 SF of total absorption compared to 18,615 SF in 2011. R&D product accounted for most of the action in 2012 with a net gain of 160,839 SF against 15,598 SF on the Industrial side. As a result of this lopsided activity, R&D was able to narrow the vacancy gap by more than two percentage points in 2012 and ended the year at 13.81% versus 13.29% for Industrial.

ACTIVITYFor The largest signed lease in 4Q 2012 was a 30,865 SF deal with San Diego-Imperial Counties Developmental Services at 5931 Priestly Drive. This newly renovated R&D building is owned by Greene Properties and the tenant is the largest nonprofi t agency in San Diego County. Other lease transactions included SGN Nutrition at 2777 Loker Avenue (25,680 SF), Signet Armorlite at 5803 Newton Drive (21,762 SF), Intravas at 5840 El Camino Real (21,669 SF), and Aurora Spine at 1920 Palomar Point Way.

An investment sale at 1950 Camino Vida Roble represented the largest transaction in 4Q 2012. The 121,500 SF multi tenant R&D/Offi ce property was purchased by Pacifi c Realty Advisors at $138.27/SF. Another signifi cant transaction was the sale of 1959 Palomar Oaks Way. This 47,437 SF building, while technically considered an Offi ce property, was relevant for two reasons. First, the buyer was an R&D user by the name of DATRON out of Vista that recognized an opportunity to expand operations in a western location and control a Corporate Headquarters building at a low price ($107.36/SF). Second, this represented a successful strategy on the part of the seller. Bixby Land Company acquired the property as part of a larger portfolio with plans to spin off the offi ce building to an owner user. This deal allows them to focus on the 5 remaining R&D buildings in the @Palomar project at a lower basis.

FORECASTThe majority of the new small and mid range for sale product delivered in the previous cycle has been absorbed. Regardless of size range there is a limited amount of for sale inventory in Carlsbad which should push buyers on the sideline into decision making mode. Qualifi ed companies can still take advantage of low interest rates and building prices compared to historical averages. Expect upward pressure on sales prices to continue at a slow but steady pace for owner user product as a result of this dwindling supply. With the exception of the former Upper Deck building on Sea Otter Place (249,000 SF), there are no buildings available for sale or lease above 100,000 SF. This means that larger users will need to consider build to suit options if they wish to expand or consolidate operations in Carlsbad.

MARKET INDICATORS

INDUSTRIAL/R&D VACANCY RATESQ4 2012

Q4 2012 | INDUSTRIAL

10.0%

7.3%

7.9%

14.7%

4.9%

13.8%

0% 5% 10% 15%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad

0%

2%

4%

6%

8%

10%

12%

14%

16%

-100

0

100

200

300

400

500

600

700

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Vaca

ncy

Rate

SF (0

00s)

Net Absorption New Supply Vacancy

CARLS BAD HIS TORICAL MARKET TRENDS

Ocean

Oceanside

Vista

SanMarcosCarlsbad

Q42012

Q12013 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

CARLSBADAT A GLANCE

Carlsbad

# PROPERTY NAME/ADDRESS BUYER TYPE SIZE SF SALE PRICE PRICE/SF

1 1950 Camino Vida Roble Investor 121,500 $16,800,000 $138.27

2 1959 Palomar Oaks Way Owner User 47,437 $5,093,070 $107.36

3 1630 Faraday Avenue Investor 32,717 $5,000,139 $152.83

4 2710 Gateway Road Owner User 10,583 $1,259,377 $119.00

# PROPERTY NAME/ADDRESS TENANT NAME SIZE SF TERM EFF RATE/SF

5 5931 Priestly Drive SDRC 30,865 125 months $1.40 NNN

6 2777 Loker Avenue SGN Nutrition 25,680 63 months $0.73 NNN

7 5803 Newton Drive Signet Armorlite 21,762 60 months $0.89 NNN

8 5840 El Camino Real Intravas 21,669 24 months $0.92 MG

9 1920 Palomar Point Way Aurora Spine 17,288 72 months Confidential

SALES ACTIVITY

LEASING ACTIVITY

TRANSACTION ACTIVITY - Q4 2012

McClellan Palomar Airport

McClellan Palomar Airport

VistaCity Boundary

Park Hyatt Aviara Resort

La Costa Resort & Spa

The Crossings at CarlsbadGolf Course

sings badurse

Legoland

Carlsbad Oaks NorthCarlsbad

Oaks North

Carlsbad RacewayCarlsbad Raceway

Carlsbad ResearchCenter

Carlsbad ResearchCenter

CarlsbadAirportCenter

CarlsbadAirportCenter

Carlsbad Ranch

Palomar Forum

Palomar Forum

BressiRanchBressiRanch

El C

amin

o Re

alEl

Cam

ino

Real

Las PalmasLas Palmas

Camino Vida RobleCamino Vida RobleEl Camino Real

Gateway RdGateway Rd

Whiptail LoopWhiptail Loop

El Camino Real

Cannon Rd

Faraday Ave

Faraday Ave

College Blvd

College Blvd

Palomar

Airpo

rt Rd

Palomar

Airpo

rt Rd

Poinsettia Ave

Poinsettia Ave El Fuerte St

El Fuerte St

Alga Rd

Melrose Dr

Melrose Dr

Poins

ettia

Ave

Armada Dr

Paseo Del Norte

Palomar Airport Rd

Avenida Encinas

Aviara Pkwy

Business Park Dr

Business Park Dr

Sycamore AveSycamo

Palomar Airport RdPalomar Airport Rd

El Fuerte St

El Fuerte St

Faraday AveFaraday Ave

Melro

se D

r

Melro

se D

r

Loker Ave

Loker Ave

Pacif icOcean

Lionshead AveLionshead Ave

7

8

This document has been prepared by Colliers International for advertising and general information only. Colliers

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

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.

prepared by ADAM MOLNAR, GREG LEWIS

TUCKER HOHENSTEIN & MIKE ERWIN, 760 438 8950

AT A GLANCE | Q4 2012 | INDUSTRIAL | CARLSBAD


OVERVIEW

Escondido Industrial Market continues to rebound from the turbulent last few years. This

industrial market continues its streak of three consecutive quarter of positive absorption,

which has resulted in the lowest vacancy rate of all the North County cities of 4.9%. This

vacancy rate is also the lowest in Escondido since 1Q08 and continues its downward trend

since the peak of 8.5% in 2Q09.

Absorption during 4Q12 was

a positive 48,000 square feet,

fi nishing the year with a positive

absorption of 55,000 square feet.

This positive absorption was a

culmination of small lease and

sale transactions combined with a

continued stabilization and growth

of the current tenancy within

the Escondido industrial market.

Escondido also benefi ts from the

continued demand from companies

to be on the I-15 corridor, as

evidenced by Hamann Construction’s nearly complete 100,000 square foot build-to-suit for

Corovan in the Escondido Research and Technology business park.

Market rents remained fl at throughout the year in the Escondido Industrial Market and sales

prices have steady increased from a year ago. The tenant and buyer activity have increased

throughout the year, while the supply continues to dwindle for both lease and for sale

buildings.

ACTIVITY

Leasing activity continued to improve but mainly consisted of small transactions. There were

25 new leases signed in 4Q12, of which 24 of these were below 10,000 square feet. The

largest signed lease in 4Q 2012, was a 14,000 SF transaction with X3 Management Services

San Diego. There were fi ve sales in Escondido, in which 3 sales were in buildings less than

10,000 square feet. The other 2 transactions consisted of SDGE purchasing a 12,500 square

foot building adjacent to its current yard at 650 Alpine Way for $116 psf, and the Union Tribune

purchased the 57,000 square foot Lee Publications building for $7 Million ($121 psf).

FORECAST

The lack of supply of buildings for lease and sale in Escondido, combined with record low

interest rates and the increase in activity, will result in upward pressure on rates and prices.

We should see a spike in lease rates and sale prices in 2013. Those waiting for distressed

opportunities will be disappointed as most of these have already been absorbed. Moreover,

with limited land and no new speculative construction on the horizon, companies will have far

less real estate options then they did during the last four years.

MARKET INDICATORS



10.0%

7.3%

7.9%

14.7%

4.9%

13.8%

0% 5% 10% 15%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad

0%

2%

4%

6%

8%

10%

12%

14%

16%

-100

0

100

200

300

400

500

600

700

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Vaca

ncy

Rate

SF (0

00s)


CARLS BAD HIS TORICAL MARKET TRENDS

Ocean

SanMarcos

Oceanside

Vista

EscondidoCarlsbad

Q42012

Q12013 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

ESCONDIDOAT A GLANCE

Escondido

Nord

ahl R

oad

Nord

ahl R

oa

Mission Road

Mission Road

Montiel Rd

Montiel Rd

Auto Park Way

Auto Park Way

Country Club DrCountry Club Dr

Industrial Ave

Industrial Ave

Simpson Way

Simpson Way

Citracado Pkwy

Citracado Pkwy

N An

drea

sen

Drive

N An

drea

sen

Drive

S An

drea

sen

Drive

S An

drea

sen

Drive

Enterprise St

Enterprise St

Valle

y Pa

rkwa

y

Valle

y Pa

rkwa

y

9th Ave

Washington Avenue

Washington Avenue

Tulip StTulip St

Mission Avenue

Mission Avenue

Escondido Ave

Escondido Ave

Center City Parkway

Center City Parkway

Quince StQuince St

Rock Springs Rd

Rock Springs Rd

PalomarPomeradoHospital

PalomarPomeradoHospital

EscondidoAuto ParkEscondidoAuto Park

Myers Avenue Myers Avenue

Auto Park Way

Auto Park Way

N. H

ale A

venu

e

N. H

ale A

venu

e

78

EscondidoResearch

& Tech Center

EscondidoResearch

& Tech Center


1 650 Alpine Way Owner User 12,519 $1,450,000 $115.82

2 207 E Pennsylvania Ave Owner User 57,140 $6,902,003 $120.79


3 2215 Auto Pky X3 Management Services, Inc. 13,916 36 months $.75 MG

SALES ACTIVITY

LEASING ACTIVITY










AT A GLANCE | Q4 2012 | INDUSTRIAL | ESCONDIDO


OVERVIEW

Despite a setback in Q4 2012 that posted a negative 100,876 SF of net absorption,

Oceanside still experienced a moderate year with 186,004 SF of positive net absorption.

The temporary setback in November was due in large part to one tenant, Genica –

Computer Geeks, who vacated 147,000 SF and relocated to a building they purchased in

Temecula.

ACTIVITY

Industrial leasing and sale

activity in the quarter was

steady with both investors

and users closing deals in the

Oceanside submarket. Jazzy

Expo renewed their lease in

the Pacifi c Coast Business

Park for two years at a below

market NNN rate. Nature’s

Supplements purchased a

20,000 SF building in the

Pacifi c Coast Business Park to

occupy. Finally two investors

closed purchases in the

Oceanside market buying 33,000 SF and 13,000 SF respectively that is a sign of investor

confi dence in the market fundamentals.

FORECAST

Oceanside is expected to do well in 2013. With the best supply of buildable land at

reasonable prices in North County and large blocks of high quality available industrial

space, Oceanside should see a number of sizeable transactions close this year. In

addition the City of Oceanside is now committed to investing in the industrial market with

assistance to stimulate attracting manufacturing jobs.

MARKET INDICATORS



10.0%

7.3%

7.9%

14.7%

4.9%

13.8%

0% 5% 10% 15%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-400

-200

0

200

400

600

800

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Vaca

ncy

Rate

SF (0

00s)


OCEANS IDE HIS TORICAL MARKET TRENDS Ocean

OceansideVista

SanMarcosCarlsbad

Q42012

Q12013 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

OCEANSIDEAT A GLANCE

Oceanside


1 1935 Avenida Del Oro Investor 33,116 $2,900,000 $87.57

2 1342 Rocky Point Dr Owner-User 19,461 $1,780,000 $91.46

3 2550 Jason Ct Investor 12,945 $895,000 $69.14


4 1332 Rocky Point Dr Jazzy Expo 28,308 26 months $0.30 NNN

SALES ACTIVITY

LEASING ACTIVITY


El CorazonEl Corazon

Ocean Ranch

Plaza Retail

Ocean Ranch

Plaza Retail

Paci c CoastBusiness ParkPaci c CoastBusiness Park

OceanRanchOceanRanch

Rancho Del OroRancho Del Oro

OceansideGateway

OceansideGateway

Sprinter Light

Rail Line

Sprinter Light

Rail Line

Rancho Del Oro Dr

Rancho Del Oro Dr

College Blvd

College Blvd

Mesa Dr

Mesa Dr

Avenida De La PlataAvenida De La Plata

Old Grove Road

Old Grove Road

Ocean Ranch Blvd

Ocean Ranch Blvd

North

Ave

North

Ave

Temple Heights Dr

Temple Heights Dr

Avenida Del Oro

Avenida Del Oro

Melrose Dr

Oceanside BlvdOceanside Blvd

Corp

orate C

enter D

r

Corp

orate C

enter D

r

AT A GLANCE | Q4 2012 | INDUSTRIAL | OCEANSIDE









Q42012

Q12013 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS


OVERVIEW

The San Marcos industrial market gave up some ground during Q4 posting 42,000

square feet of negative absorption and bringing the year-end total to negative 58,186

square feet. Fortunately, against an 8.6 million square foot industrial base this is a minor

move that increased vacancy only 67 basis points to 7.99% at year-end. The majority of

new vacancy during the quarter was in spaces smaller than 10,000 square feet making

this a competitive size range for San Marcos landlords.

ACTIVITY

Leasing activity mainly consisted of small tenants in multi-tenant parks. A couple notable

lease transactions were Goodman Manufacturing leasing 11,700 square feet and Service

Partners Supply leasing 18,081 square feet at 120 Mata Way. An owner-user purchased

12,609 square feet at 2951 Norman Strasse for $62/SF. This building sold at a lower

number because it was lender owned and had some past settling issues. The sale of 929

Rancheros, an 8,960 square foot building, for $95/SF is more indicative of market value

for non-stressed assets.

FORECAST

In the near term lease rates

for smaller (< 10,000 SF)

spaces will be under pressure

as tenants have several

opportunities to choose from.

As landlords look for ways to

diff erentiate their buildings from

the pack we anticipate lease

concessions will continue to be

used to attract tenants. Leasing

of distribution space showed

strength during Q4 and will

likely continue to do so due to

its limited supply and increasing

national demand for warehouse distribution. We expect lease rates for this product type

to lead the market. Sale prices seem to have stabilized during 2012 in the $95-$110/SF

range. These prices will continue to edge up given the limited supply, although we don’t

expect any large moves.

MARKET INDICATORS



10.0%

7.3%

7.9%

14.7%

4.9%

13.8%

0% 5% 10% 15%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

-300

-200

-100

0

100

200

300

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Va

canc

y Ra

te

SF (0

00s)


S AN MARCOS HIS TORICAL MARKET TRENDS

Ocean

Oceanside

Vista

SanMarcos

Escondido

Carlsbad

SAN MARCOSAT A GLANCE

San Marcos


1 929 Rancheros Drive Owner-User 8,960 $851,500 $95.03

2 2951 Norman Strasse Owner-User 12,609 $780,000 $61.86


3 120 Mata Way, Ste 104 Goodman Manufacturing 11,700 60 months $0.78 Gross

4 120 Mata Way, Ste 101 Service Partners Supply 18,081 48 months $0.77 Gross

SALES ACTIVITY

LEASING ACTIVITY










AT A GLANCE | Q4 2012 | INDUSTRIAL | SAN MARCOS


OVERVIEW

Strong leasing activity, driven

in part by attractive rates

during Q4, helped Vista post its

second consecutive year of net

absorption. The Vista industrial

market fi nished the year with

117,999 square feet of net

absorption (down slightly from

141,000 SF during 2011). Lease

rates and sale prices stabilized

during 2012. Vista vacancy sits

at 7.30% near its ten year low of

7.19%, which will inevitably lead

to higher lease and sale values if

demand continues at levels seen during 2011 and 2012.

The Vista industrial market is comprised of 530 buildings totaling 13.3 million square

feet with an average building size of 25,000 square feet. Major industries include: spa

manufacturing, advanced precision manufacturing, biomedical devices, food distribution,

telecommunications, and action sports.

ACTIVITY

The majority of transactions that occurred during Q4 were between 14,000-45,000 square

feet with eff ective lease rates ranging from $0.45/SF Gross to $0.53/SF NNN. Rates

dipped during Q4 mainly due to one project that adopted an aggressive rate strategy and

successfully leased 54,000 square feet to three tenants within two months. At the end

of December Stonebridge Capital, an investor, purchased One Viper Way for $23,125,000

($114.45/SF). This 202,045 square foot corporate headquarters facility is leased to Directed

Electronics and the sale price represented an approximate 10.25 % CAP on existing income

with a relatively short-term remaining on the lease. The investment sale of One Viper Way

represented the largest industrial transaction that occurred in North County during 2012.

FORECAST

Expect good functional distribution space (<15% offi ce/multiple dock positions/good truck

circulation/22’+ clear) to lease quicker than the broader market regardless of size. Supply

of distribution space is constrained and we are seeing good activity in neighboring markets,

as well as, on a national level. There will continue to be almost no lease rate diff erential

between larger buildings (>50,000SF) and smaller buildings under 15,000 square feet due

to limited supply of larger buildings. Low vacancy will continue to drive sale prices closer

to replacement cost. At the end of the year investors were under contract to purchase two

buildings in the Vista industrial park; one is approximately 130,000 square feet and the other

42,000 square feet. These transactions are anticipated to close during Q1 2013 and should

not immediately impact vacancy.

MARKET INDICATORS



10.0%

7.3%

7.9%

14.7%

4.9%

13.8%

0% 5% 10% 15%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad

Q42012

Q12013 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

Ocean

Oceanside

Vista

SanMarcosCarlsbad

VISTAAT A GLANCE

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

-200

-100

0

100

200

300

400

500

600

700

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Vaca

ncy

Rate

SF (0

00s)


VIS TA HIS TORICAL MARKET TRENDS

Vista


1 1 Viper Way Investor 202,045 $23,125,000 $114.45

2 1281 Liberty Way Owner-User 24,526 $2,750,000 $112.13


3 1325 Sycamore Avenue, Suite A Carol Cole 21,789 48 months $0.53 NNN

4 2580 Progress Street Preserved Treescapes 45,465 84 months Undisclosed

5 985 Poinsettia Avenue, Suite A Epic Boats 22,000 18 months $.45 Gross

6 975 Poinsettia Avenue Hesham Kamil 14,176 39 months $.45 Gross

SALES ACTIVITY

LEASING ACTIVITY


Sycamore Ave

Sycamore Ave

Syca

more Av

e

Oleander Ave

Oleander Ave

Green Oak Rd

Green Oak Rd

Shadowridge Dr

University Dr

La Mirada Dr

La Mirada Dr

Melros

e Dr

Melros

e Dr

Park

Cente

r Dr

Park

Cente

r Dr

Lionshead AveLionshead Ave

Palomar Airport Rd

Poins

ettia

Ave

Poins

ettia

Ave

Shadowridge

Golf Course

Shadowridge

Residential

Business Park DrBusiness Park Dr

Faraday AveFaraday Ave

AT A GLANCE | Q4 2012 | INDUSTRIAL | VISTA









NORTH COUNTYAT A GLANCE


MARKET INDICATORS



10.0%

7.9%

7.3%

13.3%

6.1%

13.6%

0% 5% 10% 15%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad

Q32012

Q42012 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

Ocean

Escondido

Oceanside

Vista

San

MarcosCarlsbad

Submarket Buildings Total Inventory Vacant SF Vacancy Rate

Carlsbad 482 14,793,976 2,018,039 13.6%

Escondido 636 7,175,725 436,957 6.1%

Oceanside 394 8,014,725 1,065,063 13.3%

San Marcos 490 8,636,002 620,263 7.3%

Vista 530 13,373,177 1,065,867 7.9%

Total 2,532 51,993,604 5,212,129 10.0%

OVERVIEWThe North San Diego County industrial market is largely decentralized and comprised of fi ve 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 County, the coastal location is a major factor in the area’s appeal to corporate users and its 826,985 residents.

The industrial market consists of approximately 52.3 million square feet. By comparison, the total San Diego industrial market is 188.3 million square feet. North County represents 27% of the total. The following table summarizes the inventory and vacancy by submarket:

North San Diego County is well known for its highly skilled labor force, excellent transportation network, pro-growth business environment, signifi cant Federal Government presence, desirable vacation destination including world class beaches, resorts, golf venues, and abundant employee housing.

The North San Diego County industrial market is home to a diversifi ed mix of users including defense, telecommunications, software, medical manufacturing, golf and leisure sports, life science and technology fi rms. Corporate neighbors include:

Coca-ColaMedtronicTitleist GolfViaSatCovidienAbbott LabsGenentechCallaway GolfL-3 CommunicationsSAIC

Isis PharmaceuticalsLife TechnologiesCobra / Puma GolfTaylorMade GolfDenso WirelessUS FoodsPhilips RespironicsThomson ReutersRockwell CollinsJohn Deere

DJO, Inc.LinearKillion IndustriesJeld-Wen Windows and DoorsSumitomo ElectricMcCain, Inc.Directed ElectronicsGIAHunter IndustriesWatkins Manufacturing

10.0%

7.9%

7.3%

13.3%

6.1%

13.6%

0% 5% 10% 15%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad

MARKET REPORTSAN DIEGO COUNTY

www.colliers.com/sandiego

Industrial demand at highest rate since 2005 Countywide vacancy drops below 10%

MARKET OVERVIEW

San Diego County’s industrial/R&D market continued its sixth straight quarter of positive demand

with over 1.0 million SF of net absorption. The net absorption recorded for 2012 exceeded 3.0

million SF making it the strongest year since the 3.4 million SF recorded in 2005. Strong leasing

activity continued the absorption trend into 2013 with a vacancy rate that has fallen in the single-

digit level – a level not seen since prior to early-2009.

The November 2012 San Diego County unemployment rate measured 8.3%, exhibiting a 0.3%

decrease from October. The California unemployment rate decreased (-0.2%) in November

and stood at 9.6% while the national rate decreased (-0.1%) to 7.4%. As of November 2012,

San Diego County experienced a year-over-year increase in non-farm employment totaling

24,600 jobs. The combined industry sectors of “Trade, Transportation, and Utilities” and

“Manufacturing” – the two predominant industrial-utilizing employment sectors – posted a

net increase of 2,300 jobs over the same period. Increasing employment will continue to fuel

absorption in 2013

In November, the USD Burnham-Moores Center for Real Estate’s Index of Leading Economic

Indicators for San Diego posted a 0.1% increase. This was the third consecutive month of

increases that was driven primarily by a decrease in initial claims for unemployment insurance

within the county along with smaller gains in consumer con dence and help wanted advertising.

The index has posted its 11th increase in the last 13 months.

MARKET TRENDS

Signi cant positive

demand drove

countywide net

absorption to over 1.0 SF

in Q4 and 3.0 million SF

for the year. This level of

demand was the most for

any year since 2005. A

total of nearly 130,000

SF was built for the year,

but an additional 173,000

SF should be completed

by mid-2013. Vacancy

stood at 9.9% and will

continue to decrease

throughout 2013.

MARKET INDICATORS

INDUSTRIAL VACANCY RATESQ4 2012

Q4 2012 Q3 2012 (P)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE


6.3%

9.7%

8.6%

8.7%

19.3%

10.9%

11.8%

12.8%

0% 5% 10% 15% 20%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial

0%

2%

4%

6%

8%

10%

12%

-4.5

-3.0

-1.5

0.0

1.5

3.0

4.5

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Vacancy R

ate

SF (

Mill

ions)


NEW SUPPLY, ABSORPTION AND VACANCY RATES

SAN DIEGO COUNTY

The San Diego County industrial/R&D

market is comprised of 187.0 million SF

of industrial and R&D space. The county

is divided into three major market areas

with 21 submarkets within them. About

62% of countywide industrial/R&D

space is located within the 13

submarkets of the Central County

market. Industrial buildings (including

manufacturing, warehouse, distribution,

and multi-tenant/incubator) make up

72% of total inventory while R&D

buildings (including ex, wet lab and

corporate headquarters) make up the

remaining 28% of the total inventory.

PROPERTY NAME/ADDRESS SUBMARKET TYPE SIZE SF SALE PRICE PRICE/SF

1950 Camino Vida Roble Carlsbad R&D 121,500 $16,800,000 $138

5959 & 6059 Cornerstone Court W. Sorrento Mesa R&D 97,945 $14,100,000 $144

4106-4122 Sorrento Valley Blvd. (4 buildings) Sorrento Valley R&D 113,571 $13,340,000 $117

900 Hitachi Way Chula Vista R&D 86,920 $11,850,000 $136

13450 Stowe Drive Poway Industrial 73,000 $7,120,000 $98

PROPERTY NAME/ADDRESS SUBMARKET TYPE SIZE SF

10015 Waples Court Sorrento Mesa Industrial 106,412 Covan World-Wide Moving (renewal)

10277 Scripps Ranch Boulevard Scripps Ranch R&D 69,900 CoreLogic Solutions

4757 Nexus Centre Drive Campus Pt./Eastgate Wet Lab 67,050

5005 Wateridge Vista Drive Sorrento Mesa R&D 61,460 Accelrys, Inc.

10390 Pacific Center Court Sorrento Mesa Wet Lab 68,400 Quantum Design


SALES ACTIVITY

LEASING ACTIVITY

TENANT NAME

Genomatica, Inc.

NET ABSORPTION

The Q4 combined industrial/R&D net absorption

totaled a positive 1,031,268 SF. Countywide net

absorption for industrial space (manufacturing,

warehouse, distribution, and multi-tenant/

incubator building uses) totaled a positive

548,589 SF and R&D space ( ex, wet lab

and R&D building uses) totaled a positive

482,679 SF. Both segments created overall

net absorption of 3,014,742 SF (1,723,474 SF

industrial; 1,291,268 SF R&D). The renewed

activity in industrial/R&D markets was re ected

in the individual submarkets as well, where 18

of the 21 countywide submarkets posted net

positive demand for 2012.

New leasing activity of 2.5 million SF during

Q4 was just 0.6% higher than the Q3, but was

comprised of a strong posting of new leases in

addition to renewals. Many of these leases will

take occupancy in the rst half of 2013, thereby

bolstering demand and driving down vacancy

even further. Leasing activity still remains

strong primarily amongst smaller tenants

(under 10,000 SF).

The majority of Q4 positive net absorption

was in the submarkets of Sorrento Mesa

(+170,636 SF), Poway (+145,198 SF), Campus

Point/Eastgate (+138,019 SF) and Miramar

(+130,769 SF). The North County submarkets

of Oceanside (-100,876 SF) and San Marcos

(-42,571 SF) saw the most space vacated for

the quarter. Several submarkets did particularly

well for the year, but Otay Mesa (+830,519 SF)

and Sorrento Mesa (+318,129 SF) performed

the best.

The countywide overall industrial/R&D average

asking rental rate reached its market bottom

of $0.80/SF/mo. in Q1 2011. For the last eight

quarters, the rent has settled in the low-$0.80

range and stood at $0.82/SF/month in Q4

2012 – a $0.01 decrease from Q3. Overall,

rates tended to be relatively at but should pick

up increased momentum in 2013 as vacancy

continues to tighten up.

VACANCY

The overall vacancy rate decreased by 34 basis

points in Q4, settling in at 9.9%. This marks

the rst quarter in four years where vacancy

has dropped below 10% (9.7% in Q1 2009).

The industrial and R&D vacancy components

measured 8.7% and 12.8%, respectively. Over

the course of the year, R&D vacancy has

decreased by 267 basis points (15.4% in Q4

2011) and industrial vacancy has decreased by

116 basis points (9.9% in Q4 2011).

The Q4 2012 combined industrial/R&D direct

vacancy rate decreased to 9.3 % compared to

9.7% at the end of Q3. The sublease vacancy

NORTH COUNTY

I-15 CORRIDOR

MCAS MIRAMAR

CENTRAL

COUNTY

Continued on page 4

P. 2 | COLLIERS INTERNATIONAL

MARKET REPORT | Q4 2012 | INDUSTRIAL | SAN DIEGO COUNTY

COLLIERS INTERNATIONAL | P. 3


Submarket / Class Bldgs

Total

Inventory

SF

Direct

Vacancy

Rate

Sublease

Vacancy

Rate

Total

Vacancy

Rate

Prior Qtr

Vacancy

Rate *

Net Abs

Current Qtr

SF

Net Abs

YTD

SF

New Supply

Current Qtr

SF

Under

Construction

SF

Proposed

SF

INDUSTRIAL TOTALS BY MARKET Manufacturing, warehouse, distribution, and multi-tenant/incubator

Central County 3,183 83,112,632 8.1% 0.4% 8.6% 8.7% 282,299 1,247,099 0 49,256 2,663,432 $0.64

North County 2,191 40,137,704 9.6% 0.1% 9.7% 9.7% 19,138 268,068 0 0 1,511,019 $0.69

I-15 Corridor 305 10,740,281 6.1% 0.2% 6.3% 7.4% 247,152 208,307 129,845 0 382,900 $0.81

TOTAL 5,679 133,990,617 8.4% 0.3% 8.7% 8.9% 548,589 1,723,474 129,845 49,256 4,557,351 $0.67

R&D TOTALS BY MARKET Flex, wet lab and R&D

Central County 797 32,749,378 10.0% 1.8% 11.8% 12.9% 474,942 1,039,918 0 123,400 1,393,588 $1.17

North County 343 11,919,114 10.7% 0.2% 10.9% 11.2% 48,429 249,241 0 0 1,623,474 $0.94

I-15 Corridor 114 8,320,647 17.7% 1.6% 19.3% 19.8% (40,692) 2,109 0 0 605,000 $1.07

TOTAL 1,254 52,989,139 11.4% 1.4% 12.8% 13.6% 482,679 1,291,268 0 123,400 3,622,062 $1.10

COMBINED INDUSTRIAL / R&D BY MARKET AND SUBMARKET

Central County

Airport / SA 76 1,888,166 6.1% 0.0% 6.1% 6.8% 12,550 (82,759) 0 0 0 $0.86

Campus Pt / Egate 41 3,849,819 11.3% 9.7% 21.0% 24.6% 138,019 160,938 0 123,400 601,967 $2.23

Central San Diego 415 8,415,760 4.1% 0.0% 4.1% 5.3% 99,607 127,009 0 0 0 $0.82

East County 604 14,158,749 5.9% 0.1% 6.0% 6.4% 50,826 248,051 0 0 1,382,158 $0.67

Kearny Mesa 628 16,474,087 4.4% 0.4% 4.8% 4.8% (9,812) 207,867 0 0 65,691 $0.97

Miramar 583 13,750,281 9.8% 1.2% 11.0% 10.9% 130,769 42,859 0 0 0 $0.85

Mission Gorge / Vly 95 2,273,798 7.0% 2.7% 9.8% 12.0% 51,081 76,907 0 0 0 $0.84

Otay Mesa 305 15,146,278 16.1% 0.7% 16.7% 16.6% (15,291) 830,519 0 49,256 1,768,274 $0.47

Rose Cyn / Morena 189 4,140,283 5.9% 0.0% 5.9% 6.2% 11,086 80,355 0 0 0 $0.77

Sorrento Mesa 277 12,951,311 11.3% 0.4% 11.7% 11.8% 170,636 318,129 0 0 0 $1.13

Sorrento Valley 106 3,411,905 8.4% 1.9% 10.2% 10.7% 16,144 53,570 0 0 0 $1.24

South Bay 594 14,349,850 7.0% 0.2% 7.2% 7.6% 53,529 30,597 0 0 0 $0.59

Torrey Pines 67 5,051,723 13.0% 0.0% 13.0% 13.6% 48,097 192,975 0 0 238,930 N/A

TOTAL 3,980 115,862,010 8.7% 0.8% 9.5% 9.9% 757,241 2,287,017 0 172,656 4,057,020 $0.80

North County

Carlsbad 484 14,851,596 13.4% 0.2% 13.5% 13.6% 23,113 176,437 0 0 1,522,132 $0.89

Escondido 636 7,175,725 4.6% 0.1% 4.7% 6.1% 98,536 95,055 0 0 39,500 $0.72

Oceanside 394 8,014,725 14.5% 0.2% 14.7% 13.3% (100,876) 186,004 0 0 1,227,361 $0.61

San Marcos 490 8,640,707 7.9% 0.0% 8.0% 7.3% (42,571) (58,186) 0 0 53,000 $0.80

Vista 530 13,374,065 7.2% 0.1% 7.3% 8.0% 89,365 117,999 0 0 292,500 $0.71

TOTAL 2,534 52,056,818 9.9% 0.1% 10.0% 10.0% 67,567 517,309 0 0 3,134,493 $0.75

I-15 Corridor

Poway 216 8,326,968 4.1% 0.2% 4.2% 4.3% 145,198 116,882 129,845 0 447,900 $0.81

Rancho Bernardo 133 8,807,534 15.9% 0.2% 16.0% 17.1% 1,013 113,090 0 0 0 $1.04

Scripps Ranch 70 1,926,426 20.5% 6.5% 27.0% 30.1% 60,249 (19,556) 0 0 540,000 $0.88

TOTAL 419 19,060,928 11.2% 0.8% 12.0% 12.9% 206,460 210,416 129,845 0 987,900 $0.98

SAN DIEGO COUNTY COMBINED INDUSTRIAL / R&D

TOTAL 6,933 186,979,756 9.3% 0.6% 9.9% 10.2% 1,031,268 3,014,742 129,845 172,656 8,179,413 $0.82

QUARTERLY COMPARISON

Q4 2012 6,933 186,979,756 9.3% 0.6% 9.9% 10.2% 1,031,268 3,014,742 129,845 172,656 8,179,413 $0.82

Q3 2012 6,923 186,473,096 9.7% 0.5% 10.2% 10.4% 313,346 2,177,531 0 253,245 7,901,261 $0.83

Q2 2012 ** 6,923 186,473,096 9.9% 0.5% 10.4% 11.0% 1,128,595 1,864,185 0 253,245 7,881,009 $0.83

Q1 2012 ** 6,923 186,473,096 10.4% 0.6% 11.0% 11.5% 735,590 735,590 0 253,245 7,747,009 $0.82

Q4 2011 6,849 188,338,032 10.8% 0.8% 11.5% 11.6% 180,204 236,197 0 253,245 7,515,118 $0.83

* Revised in Q4 2011. ** Revised in Q3 2012 to reflect changes to industrial inventory.

Average rental rates are defined as the average asking monthly rate per square foot normalized to a "triple net" basis.

San Diego County Industrial Market

VACANCY NET ABSORPTIONAvg

Rental

Rate

(NNN)

CONSTRUCTIONEXISTING PROPERTIES

INDUSTRIAL OVERVIEW

Q4 2012

SAN DIEGO:

JIM SPAIN, SIOR

Regional Managing Director | San Diego Region

License No. 00804745

4660 La Jolla Village Drive, Suite 100

San Diego, CA 92122 | USA

TEL +1 858.677.5311

FAX +1 858.795.4111

RESEARCHER:

CHRISTOPHER REUTZ

Research Director | San Diego Region

4660 La Jolla Village Drive, Suite 100

San Diego, CA 92122 | USA

TEL +1 858.677.5385

FAX +1 858.795.4185

This report has been prepared by Colliers International for

general information only. Information contained herein

has been obtained from sources deemed reliable and no

representation is made as to the accuracy thereof.

Colliers International does not guarantee, warrant or

represent that the information contained in this document

is correct. Any interested party 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.

Accelerating success.

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q4

07

Q1

08

Q2

08

Q3

08

Q4

08

Q1

09

Q2

09

Q3

09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Q4

12

$ /

SF /

Month

(N

NN

)

Industrial R&D Combined

HISTORICAL RENTAL RATE TRENDS Industrial, R&D and Combined Rates

Quarterly Average Asking Rate Per SF Per Month (NNN)

46.2%

32.4%

9.9% 6.9%

4.5%

<= 2,000 SF [234]

2,001 - 5,000 SF [164]

5,001 - 10,000 SF [50]

10,001 - 20,000 SF [35]

>= 20,001 SF [23]

INDUSTRIAL LEASING ACTIVITY BY TENANT SIZE Percentage of Total Leases Completed in Q4 2012

RENTAL RATES

Since a historical high

point in Q3 2008, the

countywide average

asking rental rate for

combined industrial and

R&D space has been

steadily decreasing.

Since Q1 2011, rents have

stabilized in the

low-$0.80/SF/month

range. The Q4 2012

average rate of $0.82/SF/

month is still 17% less

than the historical high; it

decreased by $0.01 for

the quarter.

LEASING ACTIVITY

Just over 500 leases were

completed in Q4 2012,

totaling approximately

2.5 million SF. 89% of all

leases were 10,000 SF or

less, while only 11% of all

leases were over 10,000 SF

in size. Smaller tenants

continue to make up a larger

proportion of all leases

signed in Q4 and will likely

do so in 2013.

www.colliers.com/sandiego

increased just slightly 0.6% which continued

to keep at historically low levels. At year-

end, the vacant sublease inventory accounted

for 1.1 million SF.

Nearly three years of vacancy rates in the

11%-12% range has been broken over the

past three quarters. Vacancy continues to

slide further down and will likely to be in the

low-9% range by the end of 2013.

NEW SUPPLY

In Q4, construction was completed on the

129,845 SF build-to-suit for Hoist Fitness

building in Poway. This marked the only

industrial construction in the county

during 2012. The only space currently under

construction includes the 123,400 SF building

in the Illumina campus in the Campus Point/

Eastgate submarket – which will be completed

in mid-2013 – and a 49,256 SF building on

Camino Maquiladora in Otay Mesa with projected

completion in Q1 2013.

Proposed new development totals about 8.2

million SF with 72% of this space concentrated

in just four submarkets: Otay Mesa, Carlsbad,

East County and Oceanside. The majority of

immediate to mid-term future development

will be concentrated in build-to-suits, but the

current level of elevated demand is likely to

encourage new speculative construction in the

next few years.

512 o ces in

61 countries on

6 continents

United States: 125

Canada: 38

Latin America: 18

Asia Paci c: 214

EMEA: 117

$59.6 billion in annual transactions

1.0 billion square feet under

management

Over 12,500 professionals


q4 2012 industrial report

Documents

sf building

sf deal

vacancy rate sf

sf of total absorption

vacancy building

sale product

rd user

sf multi tenant rdoce