The SVN Southwest Region Quarterly Newsletter will keep you informed and equipped with the latest trends, opportunities, and expert analysis in this thriving region. Our team of experienced professionals understands the dynamic nature of the Southwest’s commercial real estate landscape. We are committed to delivering valuable content, including market indicators, investment opportunities, regulatory updates, and localized insights.
The Southwest’s commercial real estate market is recalibrating after years of aggressive growth. Across major metros like Phoenix, San Diego, Denver, and Houston, developers are slowing down as elevated vacancies meet a more cautious tenant base. Industrial continues to be a standout—though vacancy has risen due to heavy deliveries in markets like Las Vegas and San Antonio, demand for small-bay and last-mile facilities remains solid. Otay Mesa in San Diego and West Phoenix are drawing serious interest from 3PLs and nearshoring occupiers despite macro headwinds like tariffs. Retail is proving remarkably resilient. Even with national closures, demand for quality space remains high—especially in high-income submarkets—fueling steady rent growth in San Diego, Phoenix, and Inland Empire.
Multifamily, meanwhile, faces its moment of digestion. A wave of new luxury units is colliding with affordability stress across markets, particularly in Phoenix (11.8% vacancy) and Las Vegas (9.6%). Concessions are widespread, and rent growth has turned negative in several metros. Still, absorption is healthy in markets like Fort Collins and San Diego, suggesting that demand exists—it just needs to catch up to supply. Office continues to struggle region-wide, with vacancy climbing past 16% in Phoenix and nearing record highs in Downtown San Diego. However, smaller, suburban spaces in places like Del Mar Heights and Chandler are still attracting tenants, reflecting a clear flight to quality and efficiency. Overall, Q1 signals not a market in freefall, but a sector in reset—clearing the runway for more strategic, sustainable growth ahead.
San Diego’s commercial real estate market in Q1 2025 presents varied conditions across the major property types—Office, Industrial, Multifamily, and Retail. This comprehensive review draws exclusively from CoStar’s detailed Q1 market reports to provide clarity and actionable insights for investors, property owners, brokers, and those new to commercial real estate.
As San Diego enters the second quarter of 2025, the commercial real estate (CRE) landscape reflects a bifurcated recovery. Some sectors are showing early signs of stabilization, while others struggle under the weight of high vacancies and economic stressors. Here’s a breakdown across the core sectors:
San Diego’s office market continues to face substantial headwinds, especially Downtown, where vacancies have reached unprecedented highs. The citywide vacancy rate stands at 12.9%, with Downtown alone facing a record-high availability above 35%, and industry insiders estimate true vacancy could be closer to 50%, factoring in unmarketed and underutilized space. Significant new developments like the completion of the 2.4M SF Campus at Horton and RaDD — with no tenants confirmed — intensifies the vacancy challenge.
The industrial market is experiencing mixed signals. Vacancy rates have climbed to 8.8%, a decade-high level driven by extensive new construction. The highest since 2013, due to 3.1M SF in new deliveries and over 2M SF in negative net absorption over the last 12 months. Otay Mesa is a bright spot, showcasing increased leasing activity driven by proximity to trade routes.
Multifamily properties are navigating a challenging environment characterized by substantial new unit deliveries, especially luxury units. Overall vacancy is stable at 5.0%, but submarkets like Downtown report vacancy rates exceeding 10%.
Retail remains relatively resilient with a 4.3% vacancy rate. Prime retail space remains scarce and in high demand, whereas older, lower-quality properties see longer vacancies.
San Diego’s commercial real estate landscape in early 2025 demands strategic adaptation. While office markets, especially Downtown, face structural challenges, industrial and retail sectors show selective strength, and multifamily grapples with high supply pressures.
Understanding these dynamics and responding strategically will be essential for success — whether you’re an investor, property owner, broker, or a newcomer.
Stay informed and proactive as the market continues to evolve.
Source: Costar
