MARKET DRIVERS
The San Diego industrial market posted positive 250.5K SF of direct net absorption in 1Q26, following the 462.1K SF recorded in 4Q25 and improving from the negative 546.4K SF recorded in 1Q25. While that marks a healthier start to the year than the same period last year, the quarter’s gains were not enough to fully offset the impact of recent deliveries on overall market conditions.
Total vacancy increased by 30 basis points (bps) quarter over quarter to 9.6% in 1Q26 and is now 130 bps higher than the same time last year. Total availability also rose, up 50 bps over the quarter and 140 bps over the year to 13.0%.
Lease transaction volume improved modestly from last quarter, totaling 2.1M SF across 348 deals in 1Q26. Leasing was up 3.0% quarter over quarter but down 19.5% year over year, as occupiers remained selective and continued to prioritize well-located, functional product. Asking rents have fallen slightly to $1.46/SF NNN, just 3.7% below 1Q25 levels.
Industrial investment sales activity slowed in 1Q26, with 1.4M SF trading across 54 transactions totaling $260.0M in dollar volume. Average pricing fell to $307/SF, down from $342/SF last quarter and $347/SF a year ago, indicating that buyers remain active but more price sensitive as capital markets stay selective.
ECONOMIC OVERVIEW
In December 2025, manufacturing employment in the San Diego-Chula Vista-Carlsbad MSA measured 108.5K jobs, down 2.4% year over year. Trade, transportation, and utilities employment totaled 229.8K jobs, down 0.6% year over year, suggesting that industrial-linked employment remains broadly stable but softer than it was a year ago.
The unemployment rate in San Diego County was 4.4% in December 2025, down from 4.7% in November and still below California’s 5.5% rate. While near term job growth has moderated, San Diego’s diversified base across defense, life sciences, tourism, and cross border trade continues to support long term demand for industrial and logistics space.
NEAR-TERM OUTLOOK
San Diego’s industrial market entered 2026 with mixed but constructive signals. Positive absorption and a modest increase in leasing activity point to continued occupier demand, but the market is still working through a sizable wave of recently delivered space that pushed both vacancy and availability higher. That dynamic is especially visible in Otay Mesa, where large leases such as Martin Home Furnishings at 2345 Britannia Blvd. and Republic Moving at 8140 St. Andrews Ave. show that tenants are still pursuing modern distribution space near the border and major transportation corridors.
Developer and investor activity continues to reinforce long-term conviction in key submarkets. Otay Business Park remains on track to bring 612.2K SF of first-phase space online in 2Q26, underscoring continued confidence in the cross-border logistics corridor. At the same time, the recent sale of Kearny Mesa West to H.G. Fenton highlights ongoing investor interest in infill industrial product. Looking ahead, the combination of elevated vacancy, a shrinking construction pipeline, and steady demand for functional buildings suggests tenant-favorable conditions should persist in the near term, with the market positioned to stabilize once current deliveries are absorbed.
1Q 2026 San Diego Industrial Market: Key Data Points
Explore our full San Diego industrial market review for deeper insights into leasing trends, sale activity, and submarket performance.
- Vacancy and Availability Rise: Total vacancy increased to 9.6% in 1Q 2026, up 130 basis points year-over-year, while availability climbed to 13.0% as the market absorbed recent deliveries.
- Positive Net Absorption Returns: Direct net absorption totaled 250,483 SF in 1Q 2026, improving from negative 546,442 SF one year ago.
- Leasing Activity Improves Quarter-over-Quarter: Leasing volume reached 2.1M SF across 348 deals, up 3.0% from 4Q 2025, though down 19.5% year-over-year.
- Asking Rents Edge Lower: Average asking industrial rents declined to $1.46 PSF NNN, a 3.7% decrease year-over-year, reflecting tenant-favorable conditions.
- Investment Sales Slow: Sales volume totaled $260.0M across 1.4M SF, with average pricing falling to $307 PSF as buyers remain selective amid tighter capital markets.
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