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Market Report

San Diego Industrial Market Report

2023 Investment Forecast

Cross-Border Trading Accelerates South Bay’s Growth;
Investors Prioritize Proximity to Nearby Metros, Mexico

Otay Mesa exemplifies San Diego’s strength. Growing demand for warehouse and manufacturing space proximate to the U.S.-Mexico border allowed San Diego’s industrial sector to enter this year with historically low vacancy. In South Bay alone, industrial users absorbed more than 1.5 million square feet last year, lowering local availability to 2.1 percent. Tight conditions and encouraging leasing here have prompted a rise in speculative construction — namely in Otay Mesa — with the submarket’s inventory slated to expand by more than 5 percent in 2023. Recent data suggests these deliveries should be well received, as local stock grew by 20 percent over the past two years, yet vacancy fell by 270 basis points. Additionally, the Otay Mesa East Port of Entry — a new, 10-lane crossing — is underway and set to increase cross-border truck traffic when completed in 2024, further fueling demand for border-adjacent space. Elsewhere, development is extremely sparse, including along the SR-78 and I-15 Corridors — larger submarkets with all-time low vacancy. This dynamic and strong demand for border-proximate facilities will allow San Diego to record a moderate metrowide vacancy adjustment this year.
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