Q1 2024 San Diego Office Market Report

Despite occupancy losses in major U.S. office markets since 2020, San Diego has shown resilience due to its core industries linked to innovation and the military. Still, leasing activity is anticipated to remain below pre-pandemic levels. Rent growth is expected to stagnate further with the largest spec delivery pipeline in 20 years. Vacancy in San Diego is projected to reach over 14 percent, driven by new deliveries in Downtown. Despite the addition of 2.7 million square feet of space, leasing interest remains limited, with only one tenant announced.

Due to tenant leverage in the market, concession packages are more substantial. In turn, longer lease terms are on the rise due to rent abatement, and landlords are suffering rent losses in real terms. The availability of sublet space has also hindered rent growth, reaching a high of 2.7 million square feet in the first quarter. Momentum among large occupiers has slowed significantly, with a notable decrease in leases over 25,000 square feet. More than 50 percent of volume was under 5,000 square feet in 2023, which has continued in the first quarter. Concerns loom over prime office nodes like UTC, where leasing activity has dwindled, and vacancy rates have doubled since 2019. Suburban submarkets have seen slight increases in occupancy, but Downtown continues to struggle.  

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