‘Steady Eddie’ of apartment markets.”
Like Costello, Miramontes expects to see
a slight increase in development interest in
the year ahead, though most predictions
show total expansion of San Diego’s inven-
tory at 0.6% or less. “Investors continue to
flock to core multifamily, but with limited
product, many are moving to suburban and
garden-style properties,” she says. “We
expect to see activity by institutional types,
private investors and developers.”
Lodging is another sector Costello pre-
dicts will do well. “Room rates will grow as
much as 6% per year over the next five
years” outpacing the national forecast of
just under 3%,” he says. “Trade and tourism
will help San Diego and impact RevPAR.”
He projects occupancy to reach 73.4% in
five years. “Rooms will become less avail-
able, presenting an opportunity for devel-
opers to build.”
JLL is also charting the lodging market’s
solid growth in fundamentals. “All eyes are
on San Diego, which has been the second
most liquid hotel investment market in the
US year-to-date in 2011, with hotel transac-
tion volumes totaling $1.3 billion,” accord-
ing to a JLL Hotels study. The current year
is a bell ringer of sorts for lodging, in which
San Diego saw the highest annual deal level
on record—nearly double the volume
posted in 2006, the previous record year.
The firm has tracked 13 hotel sales YTD.
But the industrial side is a bit of a differ-
ent story. “The industrial sector in San
Diego is more about its ties to the broader
supply chain,” says Costello. “The demand
isn’t as strongly focused in San Diego rela-
tive to other parts of Southern California.”
On average, San Diego doesn’t have
geography in its favor on the industrial
front, Costello adds. “Rent growth overall
in the next five years will be limited com-
pared to the rest of Southern California,”
he says. “You’ll see about 2.3% rent growth
per year compared to the 6% to 9% pro-
jected for places like the Inland Empire
and Orange County.”
On the positive side, according to Voit’s
Q3 report, there was a jump in industrial
transactions during Q3, with 1. 67 million
square feet of industrial space leased—a
12% increase over the previous quarter.
Sales also showed a year-over-year increase,
with 910,000 square feet of property sold
during Q3 as compared to the 640,000
square feet sold in Q3 2010.
“It’s evident that industrial sales and leas-
ing are on the rise in San Diego, and we
expect to see more investments as lenders
continue to dispose of distressed assets,”
Wood says. Asking lease rates remained
steady in Q3, with the average asking triple-
net lease ending the quarter at $0.66 per
foot per month. Unchanged from the pre-
ceding seven quarters, it’s a clear indication
that lease rates have hit bottom, he says.
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