San Diego Industrial Market Report

1st Quarter 2023

Posted In — Market Research | Market Report


SUBLEASE AVAILABILITY hit a new record high at the start of the year, with roughly 2.8M SF on the market. Amazon has been slowly giving back multiple spaces in the past two years
and Panasonic added almost half of its facility at The Campus at Otay Mesa in Q1.

COMING OFF two strong record-breaking years, demand has slowed in Q1, recording one of the lowest transaction volumes in leasing in almost 15 years at roughly 1.8M SF. As predicted, smaller buildings under 75K SF are seeing a large share of the activity in recent quarters as
larger spaces are sparse throughout the county.

HIGHER INTEREST RATES and economic uncertainty have resulted in a decrease in sales volume the past few quarters. Prices have, in turn, decreased to respond to the slowdown in activity, posting at $261/SF in Q1.


THE SAN DIEGO COUNTY unemployment rate in February was 3.7%, below the year-ago estimate of 4.1%, back to pre-pandemic levels. This compares with an unadjusted unemployment
rate of 4.8% for California and 3.9% for the nation during the same period. Although the percentage rate remains unchanged when compared month-over-month from January, the market added 7,800 jobs within that period.

THE IMPACT OF THE COOLING in the economy can be felt in the San Diego Industrial market, as demand slows, and vacancies and availabilities rise. However, San Diego’s location and
infrastructure advantages, such as its proximity to the border and transportation networks, will continue to attract businesses and support demand for industrial space throughout the county.


FOLLOWING TWO STRONG YEARS the San Diego industrial market is projected to experience a slowdown in activity in the coming year, as experienced in Q1. Rent growth is also expected to slow, and although vacancies and availabilities are slowly rising, they are still historically well below the long-term average.

WHILE INVESTORS are still seeking out opportunities in the San Diego
industrial market, transaction volume is expected to downshift in the near term amid high interest rates. Pricing may settle and deals may trade at lower prices as the cost of debt remains, while cap rates are projected to experience some upward pressure in 2023.

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