San Diego Industrial Market Update: Vacancy Climbs as Leasing Rebounds in Q1 2025

The San Diego industrial real estate market continued to shift in Q1 2025, with vacancy rising to 6.88%—a 1.5 percentage point increase year-over-year—while landlords became increasingly aggressive in their pursuit of tenants. Asking rents declined for the fifth consecutive quarter, down to $1.44/SF on a triple-net basis, as concessions like free rent and TI allowances gave occupiers more leverage.

Available space countywide hit 8.97%, and while new construction remains measured, Otay Mesa continues to dominate the pipeline, accounting for 77% of the 1.3 million square feet underway.

Despite economic headwinds and uncertainty stemming from ongoing U.S. tariffs and countermeasures, leasing activity saw a healthy rebound. Q1 closed with 266 industrial lease transactions—up from the historical average of 221—and over 2 million square feet leased, marking the second-strongest quarter in two years.

Net absorption, however, remained negative for the ninth straight quarter, with a loss of 210,779 SF. Central San Diego and the Airport submarkets bore the brunt of occupancy losses, while Otay Mesa again proved resilient in both leasing and new deliveries.

On the investment side, San Diego’s median sale price rose to $271.35/SF, the second-highest quarterly figure in the past two years, despite limited buyer demand. Key Q1 sales included a 125,000 SF warehouse in San Marcos for $16.2M and a 100,000 SF deal in El Cajon for $8.6M.

Key Market Stats – Q1 2025 vs Q4 2024

• Vacancy Rate: 6.88% ↑ from 6.56%
• Availability Rate: 8.97% (flat)
• Average Asking Rent: $1.44/SF ↓ from $1.47
• Leasing Activity: 2.75M SF leased ↑
• Net Absorption: -210,779 SF (still negative)
• New Deliveries: 315,298 SF
• Under Construction: 1.3M SF

Outlook:

With tariffs reshaping international trade and tenant behavior, the San Diego industrial market is likely to remain in a “wait-and-see” mode. Leasing activity may hold strong, but rent growth is expected to remain flat or soften. Owner/user buyers will continue to dominate acquisitions, while developers tread cautiously.