Industrial space doesn’t have much glamour. It is the quiet giant that forms a substantial part of the base of San Diego County’s real estate industry. More than 200 million square feet of industrial real estate exists in the region, most of it multi-tenant and investor owned.

The supply includes corporate headquarters- type, multi-tenant industrial, research and development, warehouse and light industrial. Little of it rises to being what one would call architecturally significant. Most is just dull. But the cash flow created from solid industrial property development and ownership is anything but plain.

San Diego County is seen by the worldwide financial community as one of the strongest industrial markets in the nation. The proof is the capitalization rates obtained on industrial property. Capitalization rates, or “cap rates” for short, is the cash yield percentage on an all-cash purchase. The lower the cap rate, the stronger the market. It also is an indication of the anticipated future strength of the market.

Clearly, San Diego, with a cap rate of 6.6 percent compared to most other metropolitan-area rates of 7 percent to 9 percent, is an indication of the strength of the market. California industrial cap rates are generally among the lowest in the nation.

The typical industrial building in San Diego County is a concrete, tilt-up, one-story box with as much as 10 percent of it in office space, often on a mezzanine floor. It often has dock-high loading. It is usually divisible into incubator spaces of 1,000 to 5,000 square feet.

Yet another segment of the industrial park is the mega-box: often 50,000 to 150,000 square feet, serving as warehousing, distribution or manufacturing space. The most cogent examples of this type of space are in Otay Mesa and built primarily by Murphy Development. Most of the tenants are Asian with an occasional American company cropping up just to show that our nation is still in business.

In many cases, the tenants are there because they have major interests across the border in one of the 1,000 or so maquiladora plants in Baja California that employ more than 200,000 people. Perhaps up to half the companies operating in Baja California have a presence in San Diego County. The latest of the major coups is Toyota’s plant in Tijuana that produces 180,000 truck beds and 30,000 Tacoma pickup trucks. As Toyota is basically an assembler, it requires continual “just in time” parts from a myriad of suppliers on both sides of the border.

Otay Mesa is the heart of the new industrial market in San Diego County, primarily because most of the undeveloped industrial land in the county is in Otay Mesa. San Diego County’s general plan for Otay Mesa designates several thousand acres for industrial/R&D space, most of it in the area straddling the new State Route 125 South Bay Tollway and the soon-to-be-built State Road 11 (from the Otay Mesa port of entry).

The more than 10 million square feet of industrial type space in Otay Mesa is expected to double in the next two decades.

The price of industrial land in the county has skyrocketed in recent years (what else is new?). Industrial land in North County has passed the $25 per square foot mark, or $1 million an acre. In Otay Mesa, the land is the most reasonably priced and can be acquired for $11-$12 per square foot, a virtual bargain in San Diego County terms.

Just five years ago modern industrial space in the county was leased for 50 to 70 cents per square foot. Today, it’s very difficult to rent modern space for less than 90 cents to $1 per square foot.

The highest levels of demand appear to be for what is known as incubator space. This category includes spaces that generally are 1,000 to 3,000 square feet and accommodate the needs of the small contractor, manufacturer or service firm. It is this user type that is the backbone of the San Diego economy.

Obtaining space of this type is proving to be increasingly difficult as there are relatively few new industrial parks catering to this need.

One salvation for the small industrial space user is the possibility of acquiring an incubator space. Throughout the county there are numerous industrial parks that have incubator space for sale.

With the assistance of SBA loans, these spaces become highly desirable. In East County, for instance, East County Properties has two industrial incubator parks with space for sale, both conversions from rental status. The price per square foot is $190 to $230. Both are near sell-out, having met pent-up demand.

“Until the advent of the industrial condominium, the small businessman has rarely had the opportunity to become an owner and determine his or her long-term destiny,” says Joe Bonin of East County Properties.

Overall, the region’s industrial space market is strong, but the supply of new space is limited by a constrained land supply. That means that being in an ownership position in industrial real estate augurs well for cash flow and returns on invested capital. Dull, but lovable.

Alan N. Nevin is director of economic research with MarketPointe Realty Advisors (marketpointe.com), a consultancy providing real estate and demographic statistics, feasibility studies and litigation support to the California land use industry and legal professions. Nevin can be reached by e-mail at anevin@sandiegometro.com.