Q2 2025 San Diego Industrial Market Report
Key Findings
- The City of San Diego broke ground on the largest airport redevelopment project in Otay Mesa, which will facilitate international trade and create a $1.5 billion impact on the region. The first phase is expected for completion by year-end.
- Flex properties now account for 60% of sublet space across San Diego, which was previously accounted for by logistics and manufacturing facilities.
- The largest sale in Q2 2025 occurred in Kearny Mesa, a 202,547 square foot flex property that traded for $80 million in June.
By the Numbers
- Sales Volume: $265M
- Average Sale Price Per SF: $324
- Cap Rate: 6.2%
- Vacancy Rate: 9.3%
- Average Market Asking Rent Per SF: $22.47
- SF Under Construction: 2.1M
- SF Delivered: 1.1M
- SF Absorbed: -1.1M | Q2 2025 | Source: CoStar Group
San Diego Demographics
- Unemployment rate: 4.6%
- Current population: 3,312,145
- Households: 1,199,544
- Median Household Income: $109,200
The San Diego metro benefits from employment opportunities in the military, innovation, and tourism sectors. The tourism industry is one of the strongest segments, recording a $22 billion economic impact for the 2024 fiscal year. San Diego is also home to more than 80 research institutions, which are prominent in the metro’s Golden Triangle area. The Golden Triangle also benefits from proximity to the University of California, San Diego.
Market Performance
San Diego’s industrial market continues to struggle with decreased absorption levels, with -1.1 million square feet absorbed in the second quarter. Logistics buildings over 100,000 square feet recorded a slowdown in activity with the vacancy rate increasing 100 basis points year-over-year. While absorption has been consistently slow, demand is returning to the market.
The majority of demand has been driven by multi-tenant, small-bay properties under 50,000 square feet. Demand for these facilities has been highest in the Escondido, El Cajon, and Central San Diego submarkets. Due to the increased demand, the vacancy rate for small-bay properties in these submarkets is 2.5%. Subleasing is also a main driver of activity in the metro. There has been about 5.1 million square feet sublet over the past year, with Otay Mesa and Carlsbad recording the highest level of industrial sublet space.
Construction
Otay Mesa accounts for more than half of the industrial construction on the way, with 20% of this space available. The submarket’s inventory increased by 50% as operators find the area appealing for its proximity to the border. Meanwhile, flex properties record one of the greatest additions as 2.3 million square feet of space was delivered over the past year. Mostly all of these additions were added in the UC San Diego area.
Sales
As transaction activity has remained low, cap rates have recorded an uptick to around 5 and 6%. Institutional deals are trading in this range, while mid- and small-bay properties note cap rates in the low 5% range. This is an uptick from prior levels as buildings were trading around 3% cap rates in early 2022.
