The San Diego regional industrial market has become very tenant-favorable post-Covid, as supply and demand conditions for industrial space have shifted such that availability rates around the region have spiked in the last two years. Much of this availability spike is based on speculative over-development of industrial buildings built from 2020 to 2024 to support the surge of online consumer purchasing during the early years of Covid. Nationally, between 2020 and 2025, 1.2B SF of industrial space was built around the country, a historic supply increase of 13.11% over those five years, of which 12.5M SF was added to the San Diego County inventory.
From 2023 to the present, consumer behavior has drifted toward pre-2020 norms, and the demand for industrial space has also reversed due to the slowing of imports coming into the United States. The effect on industrial market conditions is that the market is moving into tenant-favorable conditions. When compared to the nation, San Diego is in the middle of the pack of the major U.S. markets in terms of occupancy levels as shown by the chart below. While the San Diego region has drifted up to 13% availability, many U.S. markets are somewhat comparable to the region while the few softest in the U.S. are Phoenix, Seattle, Atlanta and Denver, all over 15%. Only the two markets of Los Angeles and San Francisco are still marginally below 10%, considered to be somewhat in landlord territory, while all the other markets around the country have moved solidly into leaning toward tenants.
San Diego has very diverse influences that drive the availability of industrial space throughout the region. Central to the regional population and most major highways, Kearny Mesa, Miramar and Sorrento Mesa are always in demand and ran out of developable industrial land a few decades ago, so supply in those areas will never grow. The largest remaining parcels of industrial land are in South Bay, where most of the region’s new construction happened over the last five years, with some land remaining in North County. The effects of these regional dynamics have created massive swings in the availability rates by submarket, all of which have increased, except for East County, which is fully built out and remains in strong demand due to its low cost and the communities served.
As shown on the chart below, the South Bay submarket is now at 23% availability, making it one of the softest industrial markets in the entire United States, and very tenant-favorable. Rents here are some of the cheapest in the region and will face downward pressure for a few years to come. The submarkets that are in the 10% to 15% range are considered to be in equilibrium, but many landlords have been dropping rents recently in North County, as increased softness in Vista, Oceanside and San Marcos has put pressure on Carlsbad landlords. The region’s Central County landlords in Miramar, Sorrento Mesa and Kearny Mesa have found that their space sits on the market longer than in the last few years, with modest softness in rents and an increase in free rent, even on lease renewals.
As it relates to sublease inventory, the region has been haunted in the last few years by a spike in industrial sublease inventory. In a national phenomenon, many companies are looking to shed excess space they leased during the 2020 to 2023 run-up, leaving many industrial companies today with excess capacity. The lack of imports coming into the San Diego region has also caused many companies to lean down their footprints, putting excess space on the market. With roughly 2M SF of industrial space bouncing around on the market, there are values to be had in Miramar, Poway, South Bay and Carlsbad/Vista for companies seeking more than 5,000 SF. This sublease condition is expected to last well into 2027 and creates a condition where tenants can become landlords’ biggest competitors.
Overall, the San Diego and national industrial markets have done a massive pivot in the last year where many U.S. metro areas have higher availability, a reversal in rents and a spike in concessions. We are dealing with a new normal where tenants can expect to continue to find good values and numerous opportunities for several years to come, as long as they are proactive in addressing their lease expirations and aggressive in going to market to create the proper leverage and optionality.
Market statistics provided by CoStar Group.
