Q1 2023: San Diego Office Market Report
Challenges have spread across the office landscape, with new leasing activity falling for four straight quarters to its lowest level since 2020, largely due to the drop in biotech demand since mid-2022. The office environment has become more bifurcated since 2020, with high-quality, well-located newer assets having the upper hand, while older vintage properties have seen the vacancy rate climb. The newer vintage buildings that have delivered since 2010 have the tightest vacancies. Despite this, San Diego has been relatively resilient, with net absorption remaining positive for all but three quarters over the past two years. The investment market has shown more caution as interest rates have risen, with pricing anticipated to soften as cap rates rise to compensate for the high-cost of debt, resulting in a fall in investment activity to a level last seen in early 2020. Developers are working on several projects Downtown, including the mixed-use one million-square foot Campus at Horton and the Research and Development District.