San Diego’s office market has been more resilient than other major U.S. markets since 2020 due to its core industries tied to innovation and the military. However, leasing activity remains about 17 percent below pre-pandemic levels, with rent growth stagnating. Downtown continues to heavily impact San Diego’s vacancy and availability rates. Large new developments like Campus at Horton and RaDD have pushed Downtown’s availability to 47.9 percent and these projects may cause Downtown’s vacancy to exceed 50 percent.
Although Downtown leasing continues to struggle, suburban occupancy has grown by nearly 1.3 million square feet since 2020, with most new supply pre-leased or occupied. Occupier preferences have shifted to premier suburban office projects with walkable amenities.
Available sublet space has surged to its highest level in 20 years, contributing to rent stagnation. Small leases now dominate the market, with over 50 percent of leasing volume in the first half of 2024 coming from leases under 5,000 square feet. Large leases have significantly declined, with only three new leases above 25,000 square feet signed in early 2024, one of which was the City of San Diego’s 74,000 square feet office space in Mission Valley. Overall, San Diego’s office market faces challenges from high vacancy, increased sublet space, and slowing job growth, with vacancy expected to peak above fifteen percent, similar to levels seen during the Great Recession.
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