REAL ESTATE NEWS

Downtown San Diego remains the epicenter of office stress and structural challenges ? but some aspects in the market are showing promise, according to a report from Yardi Matrix.

Overall, vacancy in the area is greater than 35%. When just looking at shadow space, the number goes up to between 40 and 50 percent despite discounted rents, according to Doug Ressler, business manager for Yardi Matrix.

This turbulent trend is highlighted by The Irvine Company fully exiting Downtown San Diego in 2025, selling landmark assets (including One America Plaza) at steep discounts, signaling low confidence in central business district recovery, Ressler told GlobeSt.com.

While the overall market is soft, suburban, amenity-rich submarkets are outperforming, including select assets in University Town Center (UTC)/La Jolla, Del Mar Heights/Carmel Valley, Mission Valley, Sorrento Mesa/Sorrento Valley and Kearny Mesa.

These areas show lower vacancy, more consistent leasing, and a continued "flight to quality," Ressler said.

Market Shaped by Hybrid Work and Space Recalibration

San Diego's office leasing market closed 2025 at an inflection point, shaped by hybrid work and ongoing space recalibration. Leasing activity remains measured and deal sizes have continued to shrink, with only two new leases above 50,000 square feet signed across the county?highlighting how intentionally companies are right-sizing their space, according to Scott Schindler, managing director at JLL.

"There's a big gap between how top-tier and older buildings are performing. Class?A, amenity-rich offices are holding up well because tenants want environments that help bring people together, support flexibility, and attract talent," Schindler told GlobeSt.com, citing that vacancy in the market rose to 14.5, up from 13.9% a year ago.

These spaces, with great technology, wellness features and walkable access to restaurants and retail, are viewed less as a cost and more as an investment in culture and productivity. Older, less efficient buildings are feeling the pressure, with rising vacancy and softer rents as tenants trade up.

"For business owners, this is a great time to rethink what the office should do and lock in quality space on favorable terms," Schindler said.

The office market report for San Diego, according to Savills, reveals that full-year leasing activity in the San Diego office market reached 3.7 million square feet (million square feet) in 2025, a 14.7% decrease from the 4.3 million square feet reported in 2024.

Tenants continue to thoughtfully recalibrate their space strategies, and leasing activity softened for both the full year and Q4.

Availability levels are expected to remain historically high amidst the recent delivery of large speculative projects, mostly concentrated in Downtown. Leasing activity is forecast to remain near the five-year quarterly average, as demand continues to be driven by lease expirations rather than new growth. Tenants are attracted to trophy assets and amenity-rich buildings, as the flight to quality is expected to persist.

Top deals reflect renewed movement and central interest. Two lease renewals were among the largest transactions by square footage in Q4 2025, but new leases and relocations accounted for the bulk of overall activity. Most of the quarter's largest deals involved tenants securing new space or changing locations, reflecting a gradual rebound in tenant mobility across the market.

Former Nissan R&D Campus in San Diego for Lease

Meanwhile, Avison Young announced this week that it is marketing a 6.55-acre, 96,500-square-foot flex/creative office/R&D campus for lease that was formerly occupied by Nissan Design America.

Located at 9800 Campus Point Drive in San Diego's UTC Innovation Hub, the property is available immediately and is ideally suited for a single-tenant headquarters, design studio, R&D facility or innovation lab.

Avison Young Principal and Managing Director, Damian McKinney, told GlobeSt.com that "the UTC campus is attractive to potential users because of its highly connected, amenity-rich environment, [and in a location] where leading companies choose to grow, attract talent, and invest for the long term."

Originally built in 1982 and designed by local architect Ken Ronchetti, the building underwent a significant 2005 renovation led by fellow architect Jennifer Luce to enhance its creative and functional appeal.

Greater Use of 'Natural' Materials

There has been a flight to quality in San Diego, according to architect Victor Lorenzo, who runs the San Diego practice for MBL Architecture, a national firm that has designed corporate headquarters for companies such as Walmart and JB Hunt.

"In the office market, much of the attention has turned to higher-end buildings and campuses that offer premium amenities such as wellness or food and beverage options," he told GlobeSt.com.

Lorenzo said office construction using natural materials is popular in the San Diego market.

"Designing offices with access to outdoor space has been a high priority for the past year, and the trend is expected to accelerate through 2026, especially in San Diego," Lorenzo said.

"Natural, tactile structural systems such as mass timber or cross-laminated timber are becoming popular alternatives for new office construction over concrete and steel."

Source: GlobeSt/ALM