San Diego, CA Industrial Market Report Q2 2026

San Diego’s economy remained supported by its diverse employment base, led by defense, life sciences, healthcare, technology, and tourism. Hiring activity moderated during the quarter as employers remained cautious amid elevated interest rates and broader economic uncertainty. High housing costs continued to limit population growth and business expansion, while industrial occupiers remained focused on operational efficiency rather than aggressive expansion. Despite softer near-term growth, San Diego’s diverse economy continues to provide a solid foundation for the industrial market over the long term.

 

Key Findings

• Market fundamentals remained soft during the second quarter as elevated vacancy and negative absorption reflected continued tenant caution and slower leasing activity.
• Construction activity continued to moderate, with a smaller development pipeline helping reduce the pace of new supply entering the market.
• Investment activity steadied despite higher financing costs, with pricing underscoring interest for well-located, institutional-quality assets.

 

San Diego Industrial Supply & Demand Dynamics

Source: CoStar Group, Inc.

 

San Diego Demographics

Source: CoStar Group, Inc.

• Unemployment Rate: 4.1%
• Current Population: 3,282,248
• Households: 1,171,278
• Median Household Income: $108,754

The San Diego industrial market remained stable during Q2 2026, though market fundamentals continued to normalize following several years of exceptionally strong performance. Vacancy increased to 9.3% as slower demand and recently completed space expanded available inventory. Net absorption totaled negative 215,000 square feet, reflecting move-outs that outpaced new leasing activity during the quarter. Asking rents averaged $21.99 per square foot, while annual rent growth moderated to -1.4% as landlords adjusted pricing and offered greater concessions to remain competitive. Despite softer near-term fundamentals, demand for modern, well-located industrial space remained steady, particularly among logistics and distribution users. With construction activity continuing to slow, supply pressures are expected to ease, positioning the market for improved balance as leasing activity recovers.

 

Top Grossing Occupations in San Diego

Source: CoStar Group, Inc.

 

Top San Diego Tenants

Source: CoStar Group, Inc.

• Rock West Composites
• Martin Home Furnishings
• Hillenbrand
• Bose Corporation

 

San Diego Industrial Construction

Development activity continued to moderate during Q2 2026 as developers responded to softer leasing conditions and elevated financing costs. Approximately 1.6 million square feet remained under construction at the end of the quarter, reflecting a smaller pipeline than in recent years. Higher borrowing costs and increased vacancy continued to limit new speculative starts, with many developers prioritizing preleased or build-to-suit projects. While recently completed buildings have taken longer to lease, the slower pace of construction will help ease future supply pressures. As development activity continues to normalize, the market is expected to move toward a healthier balance between supply and demand, supporting improved fundamentals over the coming quarters.

 

SF Construction Starts

Source: CoStar Group, Inc.

 

SF Under Construction

Source: CoStar Group, Inc.

 

San Diego Industrial Sales

Investment activity remained steady during Q2 2026 despite a higher interest rate environment. Total sales volume reached over $296 million, while pricing averaged $319 per square foot. Average capitalization rates increased to 6.4%, reflecting ongoing adjustments to financing costs and investor return expectations. Buyers are continuing to favor well-located, high-quality industrial assets with stable income streams, while overall transaction activity remained measured. Institutional investors remained active, particularly for assets with strong occupancy and long-term income potential. As capital market conditions improve, investor demand is expected to strengthen, supported by San Diego’s long-term industrial fundamentals and limited supply.

 

San Diego Industrial Sales Volume

Source: CoStar Group, Inc.

 

By the Numbers

Q2 2026 | Source: CoStar Group, Inc.

• Sales Volume: $296M
• Price Per SF: $319
• Cap Rate: 6.4%
• Vacancy Rate: 9.3%
• Rent Growth: -1.4%
• Asking Rent Per SF: $21.99
• SF Under Construction: 1.6M
• SF Delivered: –
• SF Absorbed: -215K