4Q 2012 Industrial Report

Industrial Report
North San Diego County

4th 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

Q4 2012 | INDUSTRIAL

CARLSBAD
AT A GLANCE

OVERVIEW
Absorption 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
Oceanside
positive gain of 23,113 SF. The overall vacancy rate for Industrial/R&D continued to inch
Vista downward and finished 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
San with a net gain of 160,839 SF against 15,598 SF on the Industrial side. As a result of this
Carlsbad Marcos
Ocean 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.

ACTIVITY
MARKET INDICATORS
For The largest signed lease in 4Q 2012 was CARLS BAD HIS TORICAL MARKET TRENDS
Q4 Q1 a 30,865 SF deal with San Diego-Imperial 700 16%
2012 2013 (forecast)
Counties Developmental Services at 5931 600 14%

Priestly Drive. This newly renovated R&D 500 12%
VACANCY building is owned by Greene Properties and 400 10%

Vacancy Rate
SF (000s)

the tenant is the largest nonprofit agency in 300 8%

NET ABSORPTION
San Diego County. Other lease transactions 200 6%

100 4%

CONSTRUCTION included SGN Nutrition at 2777 Loker Avenue 0 2%
(25,680 SF), Signet Armorlite at 5803 -100 0%

RENTAL RATE Newton Drive (21,762 SF), Intravas at 5840 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

El Camino Real (21,669 SF), and Aurora Net Absorption New Supply Vacancy
LEASE CONCESSIONS 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/Office property was purchased by Pacific Realty
Advisors at $138.27/SF. Another significant transaction was the sale of 1959 Palomar
Oaks Way. This 47,437 SF building, while technically considered an Office property, was
INDUSTRIAL/R&D VACANCY RATES
relevant for two reasons. First, the buyer was an R&D user by the name of DATRON out of
Q4 2012 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
Carlsbad
Carlsbad 13.8% as part of a larger portfolio with plans to spin off the office building to an owner user. This
Escondido 4.9%
deal allows them to focus on the 5 remaining R&D buildings in the @Palomar project at a
lower basis.
Oceanside 14.7%
San Marcos 7.9% FORECAST
The majority of the new small and mid range for sale product delivered in the previous cycle
Vista 7.3% has been absorbed. Regardless of size range there is a limited amount of for sale inventory
North County 10.0% in Carlsbad which should push buyers on the sideline into decision making mode. Qualified
companies can still take advantage of low interest rates and building prices compared to
0% 5% 10% 15%
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.

www.colliers.com/carlsbad

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AT A GLANCE | Q4 2012 | INDUSTRIAL | CARLSBAD
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TRANSACTION ACTIVITY - Q4 2012
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SALES ACTIVITY La Costa Resort
Av & Spa
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# PROPERTY NAME/ADDRESS
Pk BUYER TYPE SIZE SF SALE PRICE PRICE/SF
y w
Park Hyatt
1 Aviara Resort
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
LEASING ACTIVITY

# 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

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.


ESCONDIDO
AT A GLANCE

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
Oceanside
Vista
vacancy rate is also the lowest in Escondido since 1Q08 and continues its downward trend
since the peak of 8.5% in 2Q09.
San Escondido CARLS BAD HIS TORICAL MARKET TRENDS
Carlsbad Marcos Absorption during 4Q12 was
Ocean
a positive 48,000 square feet, 700 16%

600 14%
finishing the year with a positive
500 12%
absorption of 55,000 square feet.
400 10%
MARKET INDICATORS This positive absorption was a

Vacancy Rate
SF (000s)
300 8%

Q4 Q1
culmination of small lease and
200 6%
2012 2013 (forecast) sale transactions combined with a 100 4%
continued stabilization and growth 0 2%
VACANCY of the current tenancy within -100 0%

NET ABSORPTION
the Escondido industrial market. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Escondido also benefits from the
Net Absorption New Supply Vacancy
CONSTRUCTION continued demand from companies
to be on the I-15 corridor, as
RENTAL RATE
evidenced by Hamann Construction’s nearly complete 100,000 square foot build-to-suit for
LEASE CONCESSIONS Corovan in the Escondido Research and Technology business park.

Market rents remained ﬂat 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.
INDUSTRIAL/R&D VACANCY RATES
Q4 2012 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
Carlsbad 13.8%
largest signed lease in 4Q 2012, was a 14,000 SF transaction with X3 Management Services
Escondido
Escondido 4.9% San Diego. There were five sales in Escondido, in which 3 sales were in buildings less than
Oceanside 14.7% 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
San Marcos 7.9%
purchased the 57,000 square foot Lee Publications building for $7 Million ($121 psf).
Vista 7.3%
North County 10.0% FORECAST
The lack of supply of buildings for lease and sale in Escondido, combined with record low
0% 5% 10% 15%
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.

AT A GLANCE | Q4 2012 | INDUSTRIAL | ESCONDIDO

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SALES ACTIVITY

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

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



OCEANSIDE
AT A GLANCE

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 –
Oceanside Computer Geeks, who vacated 147,000 SF and relocated to a building they purchased in
Vista
Temecula.

San ACTIVITY
Carlsbad Marcos Industrial leasing and sale OCEANS IDE HIS TORICAL MARKET TRENDS
Ocean
activity in the quarter was 800 20%
steady with both investors 18%
600
and users closing deals in the 16%
MARKET INDICATORS
Oceanside submarket. Jazzy 400
14%

Vacancy Rate
12%
Q4 Q1 Expo renewed their lease in
SF (000s)

2012 2013 (forecast) 200 10%
the Pacific Coast Business 8%

VACANCY
Park for two years at a below 0
6%

market NNN rate. Nature’s -200
4%
2%
NET ABSORPTION Supplements purchased a
-400 0%
20,000 SF building in the 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
CONSTRUCTION
Pacific Coast Business Park to
RENTAL RATE occupy. Finally two investors Net Absorption New Supply Vacancy

closed purchases in the
LEASE CONCESSIONS Oceanside market buying 33,000 SF and 13,000 SF respectively that is a sign of investor
confidence 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
INDUSTRIAL/R&D VACANCY RATES space, Oceanside should see a number of sizeable transactions close this year. In
Q4 2012
addition the City of Oceanside is now committed to investing in the industrial market with
assistance to stimulate attracting manufacturing jobs.
Carlsbad 13.8%
Escondido 4.9%
Oceanside
Oceanside 14.7%
San Marcos 7.9%
Vista 7.3%
North County 10.0%

0% 5% 10% 15%


AT A GLANCE | Q4 2012 | INDUSTRIAL | OCEANSIDE

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Ocean Gateway
Ranch

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El Corazon

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Oceanside Blvd

Sprinter Light
Rail Line

SALES ACTIVITY

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
LEASING ACTIVITY

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



SAN MARCOS
AT A GLANCE

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
Oceanside move that increased vacancy only 67 basis points to 7.99% at year-end. The majority of
Vista
new vacancy during the quarter was in spaces smaller than 10,000 square feet making
this a competitive size range for San Marcos landlords.
San Escondido
Carlsbad Marcos
Ocean
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
MARKET INDICATORS Partners Supply leasing 18,081 square feet at 120 Mata Way. An owner-user purchased
Q4 Q1 12,609 square feet at 2951 Norman Strasse for $62/SF. This building sold at a lower
2012 2013 (forecast) 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
VACANCY for non-stressed assets.
NET ABSORPTION
FORECAST
CONSTRUCTION In the near term lease rates S AN MARCOS HIS TORICAL MARKET TRENDS
for smaller (< 10,000 SF)
RENTAL RATE 300 9%
spaces will be under pressure
8%
LEASE CONCESSIONS as tenants have several 200
7%
opportunities to choose from. 100 6%

Vacancy Rate
As landlords look for ways to
SF (000s)

5%
0
diﬀerentiate their buildings from 4%

the pack we anticipate lease -100 3%

2%
concessions will continue to be -200
1%
INDUSTRIAL/R&D VACANCY RATES used to attract tenants. Leasing -300 0%
Q4 2012 of distribution space showed 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

strength during Q4 and will
Net Absorption New Supply Vacancy
likely continue to do so due to
Carlsbad 13.8%
its limited supply and increasing
Escondido 4.9% national demand for warehouse distribution. We expect lease rates for this product type
Oceanside 14.7% 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
San Marcos
San Marcos 7.9%
expect any large moves.
Vista 7.3%
North County 10.0%

0% 5% 10% 15%


AT A GLANCE | Q4 2012 | INDUSTRIAL | SAN MARCOS

SALES ACTIVITY

1 929 Rancheros Drive Owner-User 8,960 $851,500 $95.03
2 2951 Norman Strasse Owner-User 12,609 $780,000 $61.86
LEASING ACTIVITY

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



VISTA
AT A GLANCE

OVERVIEW
Strong leasing activity, driven VIS TA HIS TORICAL MARKET TRENDS
in part by attractive rates
700 10%
during Q4, helped Vista post its 9%
600
Oceanside second consecutive year of net 500 8%
Vista
absorption. The Vista industrial 400
7%

market finished the year with

Vacancy Rate
6%

SF (000s)
300
5%
San 117,999 square feet of net 200
4%
Carlsbad Marcos absorption (down slightly from 100
3%
Ocean
141,000 SF during 2011). Lease 0 2%
-100 1%
rates and sale prices stabilized
-200 0%
during 2012. Vista vacancy sits 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
MARKET INDICATORS
at 7.30% near its ten year low of
Q4 Q1 7.19%, which will inevitably lead Net Absorption New Supply Vacancy
2012 2013 (forecast)
to higher lease and sale values if
demand continues at levels seen during 2011 and 2012.
VACANCY

NET ABSORPTION 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
CONSTRUCTION manufacturing, advanced precision manufacturing, biomedical devices, food distribution,
telecommunications, and action sports.
RENTAL RATE

LEASE CONCESSIONS ACTIVITY
The majority of transactions that occurred during Q4 were between 14,000-45,000 square
feet with effective 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
INDUSTRIAL/R&D VACANCY RATES ($114.45/SF). This 202,045 square foot corporate headquarters facility is leased to Directed
Q4 2012 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
Carlsbad 13.8%
represented the largest industrial transaction that occurred in North County during 2012.
Escondido 4.9% FORECAST
Oceanside 14.7% Expect good functional distribution space (<15% office/multiple dock positions/good truck
circulation/22’+ clear) to lease quicker than the broader market regardless of size. Supply
San Marcos 7.9%
of distribution space is constrained and we are seeing good activity in neighboring markets,
Vista
Vista 7.3% as well as, on a national level. There will continue to be almost no lease rate differential
North County 10.0% 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
0% 5% 10% 15%
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.


AT A GLANCE | Q4 2012 | INDUSTRIAL | VISTA
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Airp
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SALES ACTIVITY Palo

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
LEASING ACTIVITY

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


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