REAL ESTATE NEWS

The latest numbers from the San Diego industrial market in Q1 appear to confirm what industrial brokers have been feeling on the ground: the recovery has begun.

That is the interpretation from JLL Associate Jackson Childers, who said that although exogenous shocks (tariffs and now energy uncertainty) continue to put pressure on San Diego occupiers.

"The supply-constrained market is trending towards normalization," he told GlobeSt.com.

"A mix of large block renewals, particularly in Otay Mesa, along with growth from automotive and defense firms, led the way in Q1."

Small-bay investment sales and owner-user deals were another bright spot, with total sales volume reaching nearly $200 million, according to Childers.

Also, San Diego's industrial market posted 220,000 square feet of positive net absorption during Q1 2026, pushing vacancy down 20 bps quarter-over-quarter to 7.7%.

The improvement in San Diego's industrial leasing market was driven by move-ins from the logistics and consumer goods sectors, while a limited development pipeline and strong renewal activity provided supply-side support.

After two consecutive years of new-leasing growth, North County showed positive signs with availability moderating.

South County performance was mixed, with 208,000 square feet of positive absorption in Chula Vista offset by move-outs in Otay Mesa, which pushed the submarket vacancy to 15.7%.

"It's true that Otay lost a couple of big tenants in Q1," Childers said. "On the other hand, a few of the largest deals of the quarter were renewals that took place in Otay. So, from a deal standpoint, Otay stood out. From an absorption perspective, it lost ground."

As South County's development pipeline thins and leasing activity absorbs excess supply over the next year, the market's recovery should broaden across clusters, according to the report.

Looking ahead, Childers expects stronger absorption of functional warehouse space, with Class A rent growth following.

Source: GlobeSt/ALM