MARKET DRIVERS
The San Diego office market vacancy rate increased by 160 basis points (bps) year-over-year (YOY) and rose 90 bps quarter-over-quarter (QOQ) to 13.8%. Total availability held steady at 17.7% QOQ but is up 10 bps YOY.
Leasing activity totaled 1.1M SF in 1Q25, marking a 28.0% decline from the 1.5M SF recorded in 1Q24. Direct net absorption was negative 45.9K SF; however, strong sublease activity pushed total net absorption into positive territory at 36.9K SF in 1Q25, an improvement over 1Q24 and a bright spot amid softer leasing volume.
There were 880.7K SF of sales transactions in 1Q25, up 127.4% from 1Q24. While this was slightly less than half the activity from last quarter’s total, the average price per SF increased significantly, reaching the highest level recorded since 3Q23.
ECONOMIC REVIEW
In February 2025, San Diego County’s unemployment rate stood at 4.4%, marking a 20 bps decrease from October 2024 and a 10 bps increase year-over-year. Statewide, California reported an unemployment rate of 5.4%, down 10 bps from the previous quarter but up 30 bps compared to the same time last year.
The San Diego-Carlsbad-San Marcos Metropolitan Statistical Area (MSA) lost 14,000 jobs in total non-farm employment between November and February. The largest decreases in this time came from the Trade, Transportation, and Utilities, and the Professional and Business Services sectors, which lost 7,000 and 2,300 jobs respectively. Education and Health Services was the only sector to add jobs, gaining 2,800 in this time frame.
NEAR-TERM OUTLOOK
The San Diego office market is currently navigating a period of uncertainty, as decision-makers await clarity on several proposed federal policies that could significantly impact business operations. Measures such as tariffs, reduced corporate taxes, and deregulation have all been floated, but the lack of implementation thus far makes it difficult to predict the market’s trajectory. Until these proposals take shape, many companies are adopting a wait-and-see approach. Once key policy decisions are finalized, stakeholders will be better positioned to evaluate long-term strategies, potentially unlocking a more active leasing and investment environment in the region.
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