San Diego Commercial Real Estate Market Overview

05/31/2025

Industry Insights

San Diego’s commercial real estate market continues to evolve in 2025, offering a blend of resilience and opportunity that has captured the attention of institutional, national, and international investors. The region’s enviable economic fundamentals – from its diverse job base (spanning life sciences, defense, tech, and tourism) to its steady population growth – provide a strong foundation for long-term real estate investments. At the same time, recent shifts in work patterns, supply gluts in certain sectors, and ambitious development projects are reshaping the landscape. Investors who understand San Diego’s unique mix of strengths and challenges can strategically position themselves to capitalize on emerging trends in this dynamic market.

Market Overview and Economic Drivers

Robust Economy Fuels Demand: San Diego boasts a growing metro population of over 3.3 million people and a highly skilled workforce. The city’s economy is anchored by key industries such as biotechnology and life sciences, defense (with large naval and military bases), telecommunications, and international trade via its border with Mexico. These sectors have helped drive employment growth and maintain relatively low unemployment in recent years. High average incomes and a desirable quality of life (think year-round mild climate and coastal amenities) continue to attract both businesses and talent to the region.

Demographic & Infrastructure Advantages: San Diego’s demographic profile – younger median age and high educational attainment – supports innovation and consumer spending. Major research institutions like UC San Diego feed the talent pipeline, especially in STEM fields. Cross-border commerce is another unique driver: the proximity to Tijuana’s manufacturing hubs and the planned Otay Mesa East Port of Entry are boosting logistics and warehouse demand on the U.S. side. Infrastructure investments, such as public transit expansions and highway improvements, are ongoing to support the growth. Additionally, a strong tourism sector (San Diego is a top U.S. travel destination) bolsters retail and hospitality real estate, especially in downtown and coastal submarkets.

What Drives San Diego’s Commercial Real Estate Market? Investors often ask what makes San Diego’s commercial real estate attractive compared to other markets. The answer lies in a combination of factors: stable economic growth, limited land availability (which restrains overbuilding), and the presence of “recession-resistant” industries like military and biotech. Unlike some markets that heavily depend on a single sector, San Diego’s diversified economic base provides a cushion against volatility. For example, during national downcycles, the region often fares better thanks to continuous defense spending and healthcare demand. Furthermore, San Diego’s geographic constraints – hemmed in by the ocean, mountains, and an international border – mean that developable land is scarce. High barriers to new construction have generally kept vacancy rates relatively low and supported rent growth across asset classes over the long term. These fundamentals give investors confidence that demand for space will persist, even as cycles come and go.

Office Market Trends and Recovery

The San Diego office market is emerging from the pandemic-driven slowdown with signs of a cautious rebound. As of late 2024, the overall office vacancy rate hovered around 14%, a figure that, while elevated compared to the pre-2020 era, is markedly lower than office vacancy in some other major California markets ( Globe St ). In fact, San Diego’s office vacancy peaked at about 14.2% in Q3 2024 and ticked down to roughly 13.9% by the end of the year , indicating that tenant demand has started to keep pace with space coming online or being vacated. Net absorption turned positive in the fourth quarter of 2024, the first time in nearly three years that more office space was filled than emptied ( Globe St ). This late-year surge – about +304,000 SF in Q4 alone – was a stark improvement after several quarters of pandemic-era downsizing. It appears that as companies recalibrate their space needs, many are still committed to having a presence in San Diego, especially those in life science, biotech, and defense contracting that require collaborative and technical facilities.

Flight to Quality and New Development: One notable trend in the office sector is a pronounced “flight to quality.” Tenants are gravitating toward newer or recently renovated Class A buildings with modern amenities, lab space, or flexible layouts, while older Class B/C offices (especially in downtown high-rises) face more challenges. Developers have largely pulled back on speculative office construction; in fact, for multiple quarters through the end of 2024, no new multi-tenant office projects were under construction in San Diego County ( Globe St ). This construction pause, combined with the uptick in leasing, has helped stabilize the market. The only significant delivery in late 2024 was a 171,000 SF build-to-suit office/lab project in the UTC area (University Town Center) for life sciences . This highlights how development has shifted toward life science R&D campuses and build-to-suit projects for tenants who have specialized needs.

Key Office Submarkets: Downtown vs. Suburban Hubs

Downtown San Diego: The downtown CBD (central business district) offers the largest concentration of office space in the region but has been grappling with higher vacancy and structural headwinds. Downtown’s office vacancy has climbed into the 20–25% range, far above the metro average, as some tenants downsized or migrated to suburban locations. By late 2024, downtown vacancy was approximately 24.6% – an improvement from earlier in the year but still reflecting a glut of older office stock . Landmark towers in the urban core have struggled with lower demand; for instance, several of downtown’s prominent office high-rises changed hands recently at steep discounts. A notable example was Irvine Company’s sale of two Broadway towers (101 W. Broadway and 225 Broadway) at roughly only one-third of their 2005 purchase price ( GlobeSt ). These transactions, at prices near $100 per square foot, underscore the valuation reset occurring in downtown. However, it’s not all bleak for the city center – some investors and businesses are betting on a renaissance. Both towers’ buyers, for instance, expressed confidence in the long-term vitality of downtown and plan to continue operating them as offices. The public sector is also catalyzing change: the City of San Diego is exploring office-to-residential conversions and downtown revitalization plans, while major projects like the conversion of the old Horton Plaza mall into a technology campus are injecting new life (and workers) into downtown.

University City / UTC and Sorrento Mesa: In contrast, suburban office hubs such as University City (UTC) – near La Jolla and the UCSD campus – and the Sorrento Mesa/Sorrento Valley area are performing relatively well. These areas form the heart of San Diego’s renowned “Golden Triangle” for tech and biotech, and they continue to attract tenants in innovative industries. Vacancy rates in prime UTC buildings and nearby Torrey Pines (a hotspot for life science companies) tend to be much lower than downtown, often in the single digits or low teens. Lab-capable spaces and newer campuses in these submarkets are in demand, even as traditional office use evolves.

Mission Valley, Kearny Mesa, and Other Nodes: San Diego’s other office submarkets also merit attention. Mission Valley, a central neighborhood traditionally filled with mid-rise offices and hotels, is undergoing a transformation toward mixed-use. Large-scale projects (like the Riverwalk redevelopment and the new SDSU Mission Valley campus) are adding housing, retail, and creative office space, modernizing the area. While Mission Valley’s office inventory is smaller than downtown or UTC, its central location and new amenities keep it attractive for firms seeking convenience. Kearny Mesa, another central submarket historically known for defense industry facilities and low-rise business parks, is likewise evolving. The recent Kearny Mesa Community Plan update is paving the way for more residential and office development in what has been a mainly industrial zone. Investors see opportunity here to reposition older office/flex properties to serve the next generation of users, given Kearny Mesa’s strategic location at the crossroads of San Diego’s highways. Meanwhile, in North County areas like Del Mar Heights and Carlsbad, office markets remain relatively balanced – these submarkets serve local tech and R&D companies and have seen fewer wild swings, though they too are adjusting to hybrid work patterns. Overall, San Diego’s office sector in 2025 can be characterized as stabilizing: landlords are increasingly open to concessions and spec suites, and tenants are slowly re-entering the market with cautious expansions or new leases. For investors, office assets in San Diego present a mixed picture – value-add plays abound in the CBD and older suburban stock, while well-leased life science and trophy properties command premium pricing and offer stable long-term growth potential.

Industrial Market: Logistics and Life Science on the Rise

San Diego’s industrial real estate sector has been a darling of investors for years, thanks to historically tight vacancy and strong rent growth – but recent developments show a tale of two markets emerging. Overall industrial vacancy in the county has crept up from the ultra-low levels of the past decade; by early 2025 the vacancy rate stood in the 7–8% range, the highest in roughly ten years ( Kidder Mathews ) . This is a significant change from the sub-4% vacancy rates often seen pre-2023. What happened? In short, a combination of record construction and a slight cooling of tenant demand post-pandemic has added some slack to the market. San Diego saw a wave of new warehouse and distribution projects during 2021–2023, especially large logistics facilities built in the Otay Mesa area near the U.S.-Mexico border. As those projects delivered, some hit the market vacant or with only partial pre-leasing, causing the county’s vacancy rate to nearly double year-over-year by late 2024 ( Kidder Mathews ) .

Tight Infill Markets: While Otay Mesa deals with a supply surge, much of the rest of San Diego’s industrial market remains extremely tight. In central and north county submarkets – such as Miramar, Kearny Mesa, Poway, Vista, and Carlsbad – vacancy rates for smaller industrial and flex spaces often remain in the low-single-digits. Kidder Mathews research noted that for industrial properties under 50,000 SF (think small-bay warehouses, service industrial, and R&D flex buildings), vacancy was only around 4.6% late in 2024 ( Kidder Mathews ) . These infill areas have seen little new construction in recent years due to land scarcity and high development costs, so any uptick in availability is quickly met with demand from local tenants (contractors, suppliers, light manufacturers, and biotech companies needing flex/lab space). Rent trends illustrate this two-sided market as well – countywide average industrial rents plateaued or dipped slightly in 2024 after years of growth ( Kidder Mathews ) , but landlords in core submarkets still have pricing power and are achieving record-high rents on new leases for scarce high-end spaces. Some owners are even repurposing older industrial buildings to life science labs or creative offices in markets like Sorrento Valley and Carlsbad, chasing higher rents associated with those uses.

Retail Real Estate: High Occupancy and Adaptive Reuse

San Diego’s retail property sector has demonstrated remarkable stability coming out of the pandemic. In fact, by the end of 2024 the countywide retail vacancy rate had fallen to roughly 4.0% – its lowest level in years ( Globe St ). This figure represents a 20 basis point improvement from earlier in the year, reflecting how limited supply and steady consumer demand are keeping retail spaces filled . Unlike many parts of the country where retail has struggled with waves of store closures, San Diego has benefitted from both its high-growth residential areas (which need new stores and services) and a lack of overbuilding in retail. Local shopping center owners report that nearly all quality space is leased, and any newly vacated storefronts (often from national chain consolidations) are backfilled relatively quickly by expanding grocers, fitness studios, medical clinics, or local entrepreneurs.

Limited New Retail Supply: A key factor underpinning the strong fundamentals is the extremely limited new construction of retail space. Developers have added very few shopping centers or malls in San Diego over the past decade. On the contrary, some older retail properties have been removed from inventory – either demolished for redevelopment or repurposed for other uses. Between 2020 and 2024, San Diego’s total retail inventory actually shrank by over 1.1 million square feet as obsolete strip malls and big-box stores were torn down. With supply contracting, even a modest positive demand is enough to tighten vacancies. As of late 2024, less than 500,000 SF of retail space was under construction in the entire county, a mere 0.3% addition to inventory ( Globe St ). One of the largest projects in the pipeline is Stockdale Capital’s mixed-use development in Downtown San Diego, which will include about 300,000 SF of new retail upon completion. Given how rare large new retail centers are, this Downtown project is highly anticipated and is expected to cater to the influx of residents and workers in the urban core as downtown’s revitalization continues. In suburban nodes like Chula Vista, developers are similarly focusing on experiential and community-oriented retail – for example, the newly opened 1.6 million SF Gaylord Pacific Resort on the Chula Vista bayfront features retail and dining components and is spurring plans for a surrounding 35-acre entertainment district with shops and restaurants. Overall, the scarcity of new retail space in construction suggests that San Diego’s retail landlords will likely enjoy high occupancy and steady rent growth for the foreseeable future.

Retail Performance and Trends: While net absorption of retail space was slightly negative in 2024 (San Diego saw about 39,000 SF more move-outs than move-ins for the year), this modest dip wasn’t due to lack of retailer interest, but rather the tail-end of some pandemic shakeouts. By Q4 2024, absorption had turned positive again and vacancy was tightening to the aforementioned 4% level. Different retail formats are experiencing varied performance: Neighborhood shopping centers (anchored by supermarkets or services) are among the healthiest, with vacancy around 4.7% . Large regional malls are the softest segment, showing vacancies above 7% , as a couple of department store closures have left big holes. However, even malls in San Diego are faring better than the national average and are actively reinventing themselves – some are adding residential or office components to drive foot traffic. Rental rates for retail have been inching up; average asking rents grew about 2.6% in 2024, reaching roughly $36/SF/year for shopping center space ( Globe St ). Landlords attribute this growth to the limited supply and the high cost of new construction – replacement costs for retail (and lack of available land) mean existing well-located centers have little competition. From an investment perspective, San Diego’s retail real estate has regained favor, especially for necessity-based centers. Private equity and REITs are selectively acquiring grocery-anchored centers in growth areas like Chula Vista, Escondido, and along the I-15 corridor, recognizing the strong occupancy and stable cash flows these assets offer. Additionally, developers are eyeing older retail parcels for adaptive reuse. We see continued examples of retail-to-industrial conversions (for last-mile distribution) and retail-to-residential or mixed-use projects, reflecting the broader trend of repurposing underutilized retail land. The bottom line: San Diego’s retail market is on solid footing – tight vacancy, increasing rents, and creative redevelopment are likely to define this sector in the coming years.

How is San Diego’s Retail Sector Navigating the Future? A frequently asked question is whether brick-and-mortar retail in San Diego can continue to thrive in the age of e-commerce. The evidence so far says yes – cautiously. San Diego’s retail success is tied to its growing population and tourism influx, which sustain demand for stores, restaurants, and services that cannot be easily replicated online. Tourist-heavy areas like Downtown (Gaslamp Quarter), La Jolla, and beach towns have seen a resurgence of foot traffic supporting local shops and dining. At the same time, retail landlords are adapting by curating the right tenant mixes. Expect to see more experiential retail concepts, entertainment venues, and uses like breweries, artisanal markets, and healthcare clinics occupying traditional retail spaces. These tenants drive traffic and create community hubs, insulating centers from pure e-commerce competition. Also, the integration of online and offline (omni-channel retailing) is strong – many San Diego retailers use their stores as showrooms or convenient pick-up/return locations for online orders. In summary, while challenges exist (labor costs, high business rents, etc.), San Diego’s retail real estate appears well positioned – it’s a supply-constrained market with a steady flow of consumers, and landlords/investors who innovate will reap the rewards of one of the healthiest retail climates in California.

Multifamily Housing Market

San Diego’s multifamily market remains one of the most robust and tightly supplied in the country, even as it adjusts to an uptick in new apartment construction. Rental housing is perennially in high demand here, thanks to the region’s high cost of single-family home ownership and consistent population growth. As of early 2025, the metro-wide apartment vacancy rate is estimated in the mid-4% range, having risen from historic lows in the past 18 months. During 2021 and 2022, vacancies in many San Diego submarkets were extremely tight – often in the 2–3% range – as pandemic-era migration and limited construction kept units filled. However, the delivery of a significant number of new units from 2022 through 2024 has eased the crunch slightly. By mid-2024, the county’s apartment vacancy had climbed to about 5–6%, the highest level in several years( CRE Daily ). This increase in vacancy, though, must be viewed in context: a 5% vacancy rate is still indicative of a landlord-favorable market, and much of the “excess” vacancy is concentrated in brand-new luxury developments in downtown and UTC that are in their lease-up phase. In more affordable, established communities, apartments remain basically full.

Rents and Concessions: Rent growth in San Diego flattened in late 2023 into 2024, following a decade of extraordinary increases. The average effective rent in San Diego County is currently around $2,500 per month for all unit types combined . This represents only modest growth (roughly 0–1% year-on-year), as landlords have become cautious about pushing rents in the face of new competition. In fact, many larger apartment complexes have turned to concessions to maintain occupancy – offers of 4 to 8 weeks of free rent on a 12-month lease became more common in 2024, particularly at high-end properties. Even some marquee luxury towers in Downtown San Diego, which previously boasted waiting lists, are now offering incentives, a clear sign that renters have more choices lately . That said, rent levels today are near record highs, and with the cost of homeownership out of reach for many households (San Diego’s median home price crossed $1 million in recent years), the rental market has a deep pool of demand. Essentially, any softening in rent growth is likely temporary and confined to the top end of the market; the region’s chronic housing undersupply ensures that Class B and Class C apartments – the more affordable units – are still seeing very low vacancy and steady rent increases.

Submarket Variations: There is a notable divergence in performance across different San Diego neighborhoods. For example, Downtown San Diego’s apartment market, after a surge of new high-rise deliveries, has a vacancy rate that spiked into the double digits (around 10–11% in late 2024) ( CRE Daily ). Renters suddenly had many new luxury options to choose from in the downtown/East Village area, leading to competitive offers from landlords to fill units. However, absorption has been strong – young professionals and empty-nesters alike are drawn to the urban lifestyle – and analysts expect downtown vacancies to trend down toward more normal levels as the new buildings lease up. In contrast, suburban submarkets like Chula Vista, North Park, La Mesa, and Oceanside have remained extremely tight. Working-class neighborhoods south and east of downtown, as well as North County cities, have vacancies in the low-single-digits (often sub-4% ( Marcus Millichap )), since they offer relatively lower rents and a short supply of rental housing. These areas see relentless demand from families and individuals priced out of homeownership or central neighborhoods. Additionally, military personnel contribute significantly to rental demand around bases (such as in the South Bay and near MCAS Miramar), buoying occupancy in those areas.

New Development Pipeline: The past few years have seen a ramp-up in multifamily construction, yet building in San Diego still hasn’t kept pace with need. Large-scale projects have been concentrated in a few key areas. Downtown saw several high-rise apartment towers completed, and while that temporarily elevated vacancies downtown, the new supply is a fraction of what cities like Los Angeles have added. Mission Valley is a hotspot for new development – the Riverwalk project is underway, set to bring over 4,000 units along the San Diego River in the next decade, and the SDSU Mission Valley site will also include housing. In Kearny Mesa, following a rezoning, developers are planning thousands of units to turn that employment center into a mixed-use community. And in Chula Vista, the Otay Ranch area continues to build master-planned communities of apartments and townhomes to serve the growing South County population. Notably, the Chula Vista Bayfront’s master plan, anchored by the new Gaylord Pacific Resort, includes future residential and mixed-use components that will add a unique “live-work-play” district by the Bay. Despite these projects, regulatory hurdles and high construction costs have moderated the pace of delivery. San Diego’s rental housing deficit – particularly for middle-income and affordable units – remains a critical issue. For investors, this scenario generally means that well-located multifamily assets should enjoy high occupancy and rent resilience for years to come, as demand continues to outstrip supply.

Why Invest in San Diego Multifamily? From an investment perspective, San Diego multifamily properties are seen as a relatively safe haven and a long-term growth play. The combination of supply constraints (geographic and regulatory) and consistent demand has led to very attractive fundamentals. Even as interest rate hikes in 2022–2023 cooled investor appetite nationwide, San Diego continued to see large multifamily transactions, often involving institutional buyers like pension funds and REITs, albeit at adjusted pricing to account for higher financing costs. Cap rates for apartment complexes in San Diego generally range in the high-3% to low-4% range for core assets, and 5–6% for value-add or secondary locations – reflecting investor confidence in rent stability. One cannot overstate the role of housing affordability pressures: with the median single-family home price now around $1M, a huge segment of the population is locked into renting, providing a built-in tenant base for landlords. Furthermore, San Diego’s lifestyle and economic prospects continue to draw in new residents (both domestic movers and international immigrants), sustaining rental demand. Investors often ask, “Will rent control or new legislation impact returns in California?” It’s true that California has statewide rent control (AB 1482, limiting annual rent increases to around 5% + CPI for most properties) and local eviction controls, but thus far these measures have not deterred investment in San Diego. The reason is that rent growth, even if moderate, paired with low vacancy still produces solid NOI growth – and many San Diego apartments are stabilizing from a value-add standpoint, meaning landlords can still reset rents to market upon turnover. In summary, the outlook for San Diego multifamily is positive: expect modest rent growth in the near term as the recent supply gets absorbed, followed by a return to more accelerated rent increases if development continues to lag demand. The long-term fundamentals of too many people chasing too few homes make this a cornerstone asset class for any real estate portfolio focused on Southern California.

Investment Outlook and Opportunities

Long-Term Forecast: The long-term outlook for San Diego commercial real estate is one of sustainable growth tempered with strategic caution. Economists project continued job gains in the region, especially in high-paying sectors like tech, life sciences, and defense, which will fuel demand for both office and industrial/lab space (albeit with evolving usage patterns). Population growth is expected to be steady, not explosive – giving a gradual but consistent uptick in need for housing and retail services. One challenge that could intensify is the housing affordability crisis; if not addressed, it could spur out-migration or limit labor force growth, which in turn might cap commercial space demand. Local government and private stakeholders are conscious of this, and initiatives to increase housing supply (through upzoning and faster approvals) are slowly gaining traction. On the commercial development front, San Diego’s future will likely see more mixed-use projects that blend residential, office, and retail components, maximizing the use of limited land. Areas like Mission Valley, Kearny Mesa, and the downtown waterfront (e.g., the Navy Broadway Complex redevelopment and Seaport Village revitalization plans) are primed for such holistic growth.

Opportunities and Strategies for Investors: For institutional and international investors eyeing San Diego, the strategy entails balancing core investments with selective value-add plays. Core/core-plus opportunities exist in multifamily and industrial – these assets offer relatively lower risk and reliable returns given strong occupancy. Owning a portfolio of San Diego apartment communities or warehouse facilities can be akin to a “bond proxy” with upside, due to the market’s supply constraints. Meanwhile, opportunistic investors might find 2025–2026 to be ideal timing to snag underperforming office or retail assets at a discount, then reposition them. For instance, an older office park in Sorrento Mesa could be upgraded into creative biotech space to capture life science demand, or a half-empty shopping center in a growth area like Chula Vista could be redeveloped into a mixed-use residential village. Such repositionings, while requiring expertise, could yield outsized returns as the market recovers. It’s also worth considering public-private partnerships; San Diego’s civic initiatives (like the downtown redevelopment incentives) mean that investors who align with community development goals might unlock entitlements or subsidies for transformative projects.

In conclusion, San Diego’s commercial real estate market in 2025 presents a nuanced picture: most sectors are healthy and benefitting from economic tailwinds, while a few are in the midst of cyclical adjustments. The voice from our vantage point at Brevitas is optimistic – San Diego has proven its resilience and adaptability. Savvy investors will note that this market’s challenges (whether it’s an office tower looking for a new purpose or a warehouse waiting for the right tenant) often carry the seeds of opportunity. With deep expertise, strategic analysis, and a commitment to understanding local nuances – from Downtown to Otay Mesa, and from UTC to Chula Vista – investors can unlock significant value in San Diego’s commercial real estate landscape for years to come.