Vacancy climbs above 35%
By Joshua Ohl via Costar
CoStar Analytics
December 9, 2025 | 11:11 AM
Downtown San Diego’s office market has been hollowed out since the beginning of the pandemic in 2020. Vacancy has climbed from 16.2% to the fourth quarter’s 35.2% — for the highest rate among California’s downtown office markets.
Some market participants have suggested that with the overhang of shadow space that is not available, the true vacancy rate is closer to 50% due to unmarketed and underutilized space proliferating in the submarket.
Though law firms, government agencies and accounting firms occupy space downtown, most of these tenants have shrunk their footprints when executing new leasing, leaving a glut of available inventory in the older office towers with high-cost parking.
The number of lease transactions signed quarterly over the past few years has fallen by 25% compared with the period between 2015 and 2019, and the average lease size has declined by 20%.
But the office performance downtown has not been uniform. Office towers along the western stretches of Broadway have generally performed better than those in the B Street corridor. Occupancy has been above 80% along that end of Broadway, with many of the towers considered trophy properties. B Street is lined with commodity buildings that are older, with few amenities, and occupancy is below 70%. Strike rents are often $1 to $1.50 per square foot higher along the western stretch of Broadway.
Since 2024, nine office towers have been sold downtown, totaling nearly 4 million square feet, or nearly one-quarter of the downtown office inventory. With a new ownership class entering, and most buildings trading far below their previous sale price, this has allowed new owners to lower asking rents, particularly along B Street. However, with building expenses often near $1.50 per square foot, there’s likely a threshold below which owners cannot further discount rents.
IQHQ’s RaDD wrapped up this year with nearly 1.7 million square feet of commercial space geared toward life science users. It leased its first space, 42,000 square feet, to a biotech firm from La Jolla, and aside from some retail leases, the balance is available. Along with other recent completions at 20/6, 2100 Kettner and West, roughly 1.9 million square feet of new space is available. That total does not include the nearly 700,000 square feet of office space at Campus at Horton. That mixed-used project has been in a state of near-completion for nearly two years and was returned to its lender this year. There is no active construction, and its completion date is uncertain.
One significant challenge for downtown landlords has been the ubiquity of homelessness. Tents and tarps have become commonplace, even if the nominal level has come down over the past year. It is rare to hold a conversation about the challenges with downtown San Diego without the issue arising. It has prompted retailers, residents and commercial tenants to leave the area.
Although market participants hope that downtown’s long-term prospects will improve, particularly with the vibrant cultural amenities and sprawling multifamily properties filled with younger renters, this is likely to be a challenging stretch for owners.
Reposted with permission from CoStar
