San Diego Office Market Report

2nd Quarter 2023

Posted In — Market Research | Market Report


LEASING ACTIVITY picked up slightly in terms of number of deals in Q2, but the total volume hovered around the record low, posting at 1.3M SF across the county. The low lease volume indicates the trend of businesses downsizing and occupying smaller spaces, as many companies have adopted hybrid and remote work schedules for their employees.

RENT GROWTH has slowed in the past couple years, down over 50% of the five-year average rate of 3.5%. With the availability rate at a historical high of 19.6%, rental rates are softening through
the county, although not drastic. Tenants have been able to negotiate more concessions such as higher TI’s and free rent, even in renewals.

SALES VOLUME in Q2 dropped drastically YOY, posting at a low 425K SF, only second to 3Q 2020’s low volume when the pandemic first hit. Investors have shown much more caution amid higher interest rates and the economic cooldown.


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.

THE IMPACT of the cooling in the economy can be felt in the San Diego office market, as demand slows, and vacancies and availabilities continue to hover at record highs. Layoffs have been rising in the start of the new year across the nation and many local firms have announced layoffs in the recent months.


THE SAN DIEGO COUNTY unemployment rate in May was 3.5%, above the year-ago estimate
of 2.9%. It is up 2 basis points month-over-month, adding 4,900 jobs from April to May. This compares with an unadjusted unemployment rate of 4.5% for California and 3.4% for the nation during the same period.

THE SHIFT IN TENANTS migrating from downtown to coastal and suburban markets began
shortly after the pandemic, but the market will continue to experience this trend going forward. While coastal regions command higher rents, it is expected that tenants will still have an advantage to negotiate concessions.

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