San Diego–based RAF Pacifica Group has more than 1 million square feet of industrial and mixed-use product currently in development throughout San Diego County. SoCal Real Estate caught up with Adam Robinson, president of RAF Pacifica, to discuss what developers and investors need to know about this market for the remainder of the year and into 2019.
SoCal Real Estate: What should developers keep in mind regarding industrial and mixed-use development in San Diego for the rest of 2018?
Robinson: There’s land still available but not a lot of new industrial development that’s happening right now. Most developers will be fairly successful even if they’re not keeping in mind what people are looking for. Every developer that’s building anything brand new will be successful because of the lack of newer product and low vacancy in this market. There’s a big difference between 35-year-old space and a new building, so even those projects without amenities will be successful.
We’re trying to do things a little differently: high clear heights for distribution, heavy power for manufacturing, offices with amenity space outside. It used to be that the only outdoor amenities you would see in industrial space were benches and an ashtray. Now, these companies are mixing higher-paid office workers with warehouse workers, so they need amenities that are more like your office projects.
We’re attracting big tenants that want outdoor firepits, a bocce-ball court, and barbeques so employees can really take advantage of San Diego’s beautiful weather. Also, in industrial space, we’re putting in showers, since employees are biking to work and exercising during the workday. These were just for office, but now we’re seeing them in industrial as well.
What should investors know about this market in particular?
San Diego is a lot more diversified than in the past. It used to be more defense or military oriented, plus a few other industries. Now, it serves pretty much every kind of company and product type you can imagine.
How will 2019 differ from this year in terms of San Diego’s development climate?
With the climate action and cost of construction and lack of quality labor, I think construction costs will stay high, some delivery of new product in 2017, 2018 lots and not as much new product delivered. we’re working on some projects in SB area, no industrial. office project will deliver in 2019, small mxd in Solana Beach, but won’t have any other deliverables in 2019 where delivering we are a little over 1M feet this year.
How are lenders’ views on this market changing as we continue this prolonged real estate cycle?
Lenders are more cautious than they have been in the past, but if you have a strong borrower, they’re willing to do construction deals. They’re wanting to see some leasing in place, and they’re not financing as many projects as in the past. there’s been some tightening, and it’s a little more difficult, but it’s still doable. Plus, interest rates are definitely on the rise, which is holding back some borrowers.