San Diego Office Market Heads Into Fourth Quarter With Great Uncertainty

Leasing Volume, Rent Growth and Investment Activity Have All Fallen

San Diego’s office sector has endured a challenging stretch since the outbreak of the coronavirus pandemic. Leasing activity stumbled further in the third quarter, falling below 1 million square feet leased in the second quarter, passing that threshold for the first time in 20 years.

Companies are naturally assessing their space needs in the current environment as economic dislocation continues to cloud the market’s near-term outlook. Many firms have opted to renew in current spaces, pushing out a decision on changing space requirements until the pandemic has subsided.

It is amid this environment that quarterly rent growth turned negative and the San Diego office market recorded negative net absorption for the third straight quarter.

Adding to the region’s uncertain near-term outlook, San Diego is set to receive its largest injection of speculative office space in 10 years between now and 2022. Most of that development is focused in the downtown area, where the vacancy and availability rates are already at all-time highs.

Investors have also retreated to the sidelines, and both deal flow and sales volume have settled to near decade lows. San Diego has not recorded such low sales volume since its recovery from the Great Recession.