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, specifically the 1M SF Amazon delivery at 6980 Otay Mesa Rd.
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%. These figures are both 15 year highs. 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, highlighting modest softening across industrial-linked sectors while remaining broadly stable.
The unemployment rate in San Diego County was 4.4% in December 2025, down from 4.7%
in November and 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 on softer footing, as negative absorption and rising vacancy suggest that the market is still working through both recent deliveries and a more cautious tenant base. Even so, the quarter’s 2.1M SF of leasing activity shows that demand has not disappeared, it has simply become more selective and more concentrated in modern, functional space.
That pattern is especially visible in Otay Mesa, where Martin Home Furnishings renewed 115.5K SF at 2345 Britannia Blvd., Bose renewed 112.4K SF at 8863 Siempre Viva Road, and Republic Moving leased 77.2K SF at 8140 St. Andrews Ave. At the same time, the upcoming 1.1M SF Amazon facility at 6980 Otay Mesa Rd and the 612.2K SF first phase of Otay Business Park should keep pressure on vacancy in the near term, even as H.G. Fenton’s recent acquisition of Kearny Mesa West points to continued investor conviction in well-located infill industrial assets. Looking ahead, tenant-favorable conditions are likely to persist until current deliveries are absorbed, after which fundamentals should begin to stabilize.
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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