MARKET DRIVERS
The San Diego office market vacancy rate increased by 180 basis points (bps) year-over-year (YOY) and rose 40 bps quarter-over-quarter (QOQ) to 14.1%. Total availability held steady at 17.6% QOQ but is up 20 bps YOY.
Leasing activity totaled 1.1M SF in 2Q25, marking a 21.0% decline from the 1.4M SF recorded in 2Q24. Direct net absorption was negative 380.1K SF, bringing the cumulative absorption for 2025 to negative 282.1K SF, far lower than the 63.6K SF recorded at this point of 2024.
Conversely, there were 1.2M K SF of sales transactions in 2Q25, which alone is higher than the cumulative sale transactions for 2024 to this point. Another good sign is that on top of cumulative swales being 75.7% higher than last year, these sales have been for a higher average price/SF than last year as well; $296.15 this year compared to $201.38 last year.
ECONOMIC REVIEW
In May 2025, San Diego County’s unemployment rate stood at 4.0%, down 40 basis points from February 2024 but up 40 basis points year-over-year. Statewide, California recorded a 5.4% rate, 10 basis points lower than the previous quarter and 10 basis points higher than the same time last year.
The San Diego-Carlsbad-San Marcos Metropolitan Statistical Area (MSA) gained 16,000 jobs in total non-farm employment between February and May. The largest increase in this time came from the Leisure and Hospitality, and Government sectors, which gained 6,700 and 5,500 jobs respectively. Financial Activities and Information sectors both lost 100 jobs in this time frame.
NEAR-TERM OUTLOOK
Office sales are off to their strongest start since 2022, driven by lower interest rates and discounted pricing. These transactions may help reset the market, enabling landlords to offer more competitive rates while maintaining investment value, critical as vacancy and availability continue to rise. Downtowns nationwide have struggled, and San Diego is no exception. A notable highlight this quarter was the Prebys Foundation’s purchase of 401 B Street, which they aim to transform into a hub for business, arts, and community engagement. Their collaborative approach could serve as a model for re-imagining other downtown office properties.
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