San Diego Industrial Market Faces Mounting Pressure Amid Vacancy Climb and Rent Decline | Q1 2025 Report

The San Diego industrial real estate market continued to face headwinds in Q1 2025, marked by rising vacancy rates, falling rental prices, and negative net absorption for the ninth consecutive quarter. Although leasing activity showed strength—reaching 2.3 million square feet—overall market fundamentals remain in a state of cautious flux as both tenants and investors brace for long-term policy impacts and shifting economic conditions.

Key Market Stats:

• Vacancy Rate: 8.3% (↑ 190 bps YoY)
• Availability Rate: 11.0% (↑ 180 bps YoY)
• Average Asking Rent (NNN): $1.52/SF (↓ 3.8% YoY)
• Net Absorption: -703,374 SF (3rd straight quarter of steep losses)
• Leasing Activity: 2.3M SF (↑ from 1.7M SF in Q4)
• Sales Volume: $1.0B (↓ 43.3% YoY)

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Vacancy Rates Climb While Asking Rents Slide

Total industrial vacancy rose to 8.3%—its highest level in recent years—fueled by sluggish absorption, increased construction, and cautious tenant behavior. While asking rents held relatively firm in early 2023, Q1 2025 saw a clear shift, with rates falling nearly 4% year-over-year to an average of $1.52/SF NNN.

San Marcos Leads Leasing Surge

Otay Mesa dominated new lease activity in Q1, but San Marcos made headlines with the quarter’s largest sale: 237 Via Vera Cruz, sold for $16.2M at $201.85/SF. Notably, the asset was rezoned from C-Commercial to M-Industrial, signaling a potential redevelopment push and growing investor interest in secondary markets.

Construction Pipeline Highlights

• Amazon’s Otay Mesa Project: 1.07M SF under construction
• Carlsbad Evolve Project: 67,714 SF by Techbilt Companies

Despite negative absorption, construction continues, with 708.6K SF delivered in Q1 and another 1.3M SF expected by year’s end—raising concerns of oversupply in submarkets like South County and Otay Mesa.

Leasing Trends and Big Deals

Top Q1 lease transactions included:

• 5959 Santa Fe St (PB/Rose Canyon): 131,299 SF leased to Anheuser-Busch
• 9350 Airway Rd (Otay Mesa): 119,044 SF
• 7498 Colchester Ct (Otay Mesa): 102,099 SF

Tenants continued to favor newer, flexible spaces with high clear heights and modern amenities, while landlords leaned on concessions such as free rent to secure longer-term commitments.

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Market Outlook: Policy Uncertainty, Tariffs, and Interest Rate Watch

The industrial sector remains in limbo amid trade policy shifts, rising capital costs, and uncertainty surrounding federal deregulation. Businesses—particularly manufacturers—are taking a “wait-and-see” approach, reluctant to commit to new leases or investments until clarity emerges on tariffs and interest rates. This ongoing ambiguity could delay recovery momentum until mid-2025.