Q1 2023: San Diego Industrial Market Report

The industrial real estate market in San Diego has seen moderate leasing activity in recent quarters, with larger space users being cautious amid economic concerns and renewing rather than actively seeking new space. Conversely, small-bay occupiers have shown less caution, and demand for buildings under 50,000 square feet has remained largely unchanged. The availability rate of industrial space in San Diego has risen to its highest level since mid-2021, and there is more sublet space coming onto the market, accounting for half of the negative absorption in Q1 2023. One notable change has been Amazon’s placing of more than 300,000 square feet of logistics space on the sublease market as it re-evaluates its footprint. Annual rent growth remains firmly ahead of the longterm average, but rents have begun to moderate on a quarterly-basis since Q4 2022. The industrial market has returned to more normative levels following the record-high leasing
and rent growth. Investors have reacted to economic uncertainty and rising interest rates
with a notable downshift in activity since mid-2022. Cap rates on institutional deals are
edging upward, and pricing has started to become more responsive to conditions.