San Diego Industrial Real Estate Faces Mixed Signals in Q1 2025: Rising Vacancy, Slowing Rents & Uneven Recovery

The San Diego industrial real estate market showed early signs of strain in Q1 2025 as total countywide vacancy reached 8.3%, rising 190 basis points year-over-year and continuing an upward trajectory now stretching into its third year. Net absorption remained negative at -703,374 SF, marking a fourth consecutive quarter of declining occupancy.

Leasing activity, however, told a slightly different story. Gross leasing volume reached 2.3 million square feet, a 13.1% increase from Q4 and the highest since 2022. Much of this activity was concentrated in Otay Mesa, the city’s industrial epicenter, with multiple large leases including a 119,044 SF transaction at 9350 Airway Rd and a 102,099 SF deal at 7498 Colchester Ct.

Rental Rates Continue Downward Correction

The countywide average asking rent declined to $1.52/SF NNN, down from $1.58 the previous year. Submarkets such as Vista ($1.36), Oceanside ($1.27), and San Ysidro ($1.23) offered the most affordable space, while Class A nodes like Sorrento Mesa and UTC held asking rates of $3.17 and $3.20, respectively.

Rates are expected to face continued pressure due to record availability (now at 10.2%) and the pending delivery of more than 1.5 million square feet of new product by year-end—much of it unleased. Notably, 80% of construction is concentrated in Otay Mesa, including a 1.08M SF Amazon build-to-suit facility.

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Submarket Performance Breakdown

• North County posted the sharpest drag on occupancy, with Escondido (-98,345 SF), Carlsbad (-70,849 SF), and Oceanside (-108,023 SF) leading net absorption declines.
• Central San Diego also saw a pullback with -144,211 SF absorbed, though Mission Gorge Valley and East County submarkets managed modest gains.
• Otay Mesa and South Bay accounted for a combined 264,000+ SF in negative absorption, even as leasing surged—signaling over-saturation or hesitation around future policy risks.

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Construction Pipeline & Outlook

San Diego currently has 1.55 million SF under construction, including:

• 6980 Otay Mesa Rd: 1,077,413 SF Amazon facility
• 4150 Campus Point Dr (UTC): 172,000 SF build-to-suit for Leidos
• Carlsbad’s Evolve Flex Project: 67,714 SF

With supply growing faster than demand, vacancies are expected to rise through mid-year. However, sentiment remains cautiously optimistic among developers banking on a stabilization in 2025 as macroeconomic headwinds ease and tariffs clarify.

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Notable Sales & Lease Transactions (Q1 2025)

Sales

• 237 Via Vera Cruz, San Marcos – 80,257 SF | $202/SF
• 3310 Via de la Valle, Oceanside – 57,000 SF | $268/SF
• 494 W Calle Primera, San Ysidro – 69,530 SF | $215/SF

Leases

• 5959 Santa Fe St, Morena – 131,299 SF (Renewal)
• 9350 Airway Rd, Otay Mesa – 119,044 SF
• 7820 Paseo De La Fuente, Otay Mesa – 80,031 SF

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Looking Ahead: Market Stabilization or Further Disruption?

While tenant demand remains active, landlords are becoming more aggressive with concessions and pricing flexibility. With over 10 million SF of available space, including significant new deliveries in the pipeline, tenants have increasing leverage—especially in larger format facilities.

However, San Diego’s industrial fundamentals remain resilient long-term due to limited land supply, proximity to Mexico and the port, and growing demand for distribution and last-mile logistics.