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As Q4 2025 closes out the year, the Southwest Region — spanning Phoenix, Denver, Las Vegas, and San Diego — is settling into a new phase of market balance. After years of expansion driven by migration, development cycles, and capital inflows, the region is adjusting to a more measured pace. Industrial and retail remain relatively steady, multifamily markets are digesting new supply, and office continues to evolve as companies rethink how and where employees work.
Amid these shifting dynamics, San Diego remains one of the Southwest’s most resilient commercial real estate markets, supported by strong economic fundamentals, limited land availability, and a disciplined approach to new development.
San Diego’s commercial real estate market closed out 2025 in a period of recalibration rather than contraction. While national headlines continue to focus on distress and uncertainty, the data tells a more nuanced story locally.
Office markets remain under pressure as leasing activity slows and vacancy rises, while industrial demand is stabilizing after a cooling period. Multifamily continues to digest the recent wave of new supply, and retail remains one of the most resilient asset classes thanks to limited new development and steady consumer demand.
For investors, owners, and brokers operating in San Diego, the market is shifting from the rapid expansion of the late 2010s toward a more selective and strategic environment where location, asset quality, and pricing discipline matter more than ever.
Below is a breakdown of how each major asset class is performing as we enter 2026.
San Diego’s office market continues to adjust to post-pandemic workplace trends. Leasing activity has slowed significantly compared with pre-2020 levels, and vacancy has climbed to 12.9%, the highest level in nearly fifteen years. San Diego – CA USA-Office-Marke…
Much of the weakness is concentrated in Downtown San Diego, where vacancy has reached roughly 35%, while many suburban submarkets remain considerably healthier. San Diego – CA USA-Office-Marke…
Leasing demand is now dominated by smaller professional services tenants rather than large corporate occupiers. Nearly 90% of leases signed in 2025 were for spaces smaller than 5,000 square feet, highlighting a major shift in tenant behavior. San Diego – CA USA-Office-Marke…
At the same time, landlords are increasingly offering aggressive concessions—including free rent and larger tenant improvement packages—to secure long-term leases.
• Del Mar Heights
• Rancho Bernardo
• UTC / University City
These areas continue to attract tenants looking for modern buildings, strong amenities, and proximity to housing.
Rent growth has stalled at -0.1% year over year, reflecting tenant leverage and increased concession packages across the region. San Diego – CA USA-Office-Marke…
Investors
Distressed sales and ownership turnover—especially Downtown—are creating opportunities to acquire assets at substantial discounts compared with pre-pandemic pricing.
Owners
Flexibility is critical. Competitive lease structures, updated amenities, and repositioning strategies may be required to remain competitive.
Brokers
Demand continues to favor well-located suburban Class A space, where tenants can achieve better value and improved workplace environments.
San Diego’s industrial sector remains one of the region’s strongest property types, though the explosive rent growth seen during the pandemic has moderated.
Industrial demand remains closely tied to cross-border trade, logistics, and regional distribution, particularly along the South Bay and border region, which contains one of the largest concentrations of logistics space in the market. San Diego – CA USA-Office-Marke…
While leasing activity slowed in 2025 compared with record highs earlier in the cycle, fundamentals remain healthy relative to most U.S. markets.
• Otay Mesa
• South Bay
• Carlsbad / North County logistics corridor
These areas continue to benefit from logistics demand tied to international trade and manufacturing supply chains.
Industrial rent growth has moderated but remains above long-term averages as supply constraints continue to limit new development.
Investors
Infill logistics properties remain among the most desirable assets in the San Diego market.
Owners
Tenant demand remains strong for functional distribution and manufacturing space.
Brokers
Cross-border trade and supply chain diversification will continue driving tenant activity in South County submarkets.
San Diego’s multifamily sector is currently absorbing a wave of new deliveries that entered the market over the past several years.
Despite this temporary supply pressure, the long-term fundamentals remain strong due to the region’s housing shortage, strong employment sectors, and high barriers to new construction.
The region’s population growth has slowed since 2020 due to high living costs, but demand for rental housing remains elevated due to limited homeownership affordability. San Diego – CA USA-Office-Marke…
• North Park
• Mission Valley
• Chula Vista / South Bay
These areas continue to attract renters due to transit access, new development, and lifestyle amenities.
Rent growth has cooled in the near term as new units enter the market, but long-term demand fundamentals remain intact.
Investors
Long-term fundamentals remain strong, though near-term rent growth may remain muted while supply is absorbed.
Owners
Operational efficiency and tenant retention will be increasingly important during this phase of the cycle.
Brokers
Focus on properties with strong location advantages and long-term demographic support.
Retail has emerged as one of San Diego’s most stable commercial property sectors.
Limited new construction and steady consumer spending have kept vacancy relatively low across most submarkets. At the same time, experiential retail, restaurants, and service-based tenants continue to drive leasing demand.
San Diego also has one of the lowest retail square footage per capita among major U.S. markets, which supports long-term occupancy and rent stability. San Diego – CA USA-Office-Marke…
• La Jolla / UTC
• North County Coastal
• Mission Valley
These areas benefit from strong demographics and high consumer traffic.
Retail rents remain relatively stable, supported by limited development and continued tenant demand.
Investors
Well-located neighborhood retail centers remain highly desirable assets.
Owners
Tenant mixes focused on services, dining, and experiential uses continue to outperform.
Brokers
Retail leasing activity remains strongest in dense residential trade areas.
San Diego’s commercial real estate market is not in retreat—it is rebalancing after an extraordinary cycle.
Office continues to recalibrate amid changing workplace dynamics, industrial demand remains supported by logistics and trade, multifamily is digesting new supply, and retail continues to demonstrate resilience.
For market participants, the coming year will likely reward disciplined investment strategies and strong local market knowledge.
Investors
Look for opportunities in infill industrial, neighborhood retail, and repositioning office assets.
Owners
Focus on competitive positioning, operational efficiency, and tenant retention strategies.
Brokers
Demand remains strongest for smaller, stable assets in high-growth neighborhoods.
Source: Costar
