Wednesday

07-09-2025 Vol 2016

San Diego Office Sector Thrives Amid High Vacancy Rates and Rising Interest in Life Sciences

San Diego’s office sector has shown significant performance across various key metrics, according to Yardi Research Data.

The first five months of the year witnessed substantial office investment in San Diego, further solidifying its position as one of the top ten U.S. markets.

Remarkably, the price per square foot for office spaces in San Diego was noted as the third highest in the nation, with values significantly exceeding the national average.

As interest in the life sciences sector escalates, San Diego’s development pipeline has expanded to include several new projects as of May, positioning the metro among the largest in the country.

However, along with this growth, San Diego also experienced some of the highest office vacancy rates in the nation that month, prompting property owners to contemplate selling or redesigning underutilized spaces.

Transforming these spaces into residential units remains a promising solution.

Year-to-date through May, office investment volume in San Diego reached $690 million, ranking the metro eighth among the top 25 U.S. markets, just behind San Francisco’s $769 million.

While the Bay Area led with $2.1 billion in sales, San Diego outperformed markets like Denver ($413 million), Austin ($257 million), and Phoenix ($254 million).

A major transaction that transpired since the year’s commencement was the $255 million sale of Pfizer’s La Jolla Campus, indicating strong interest from major investors.

Blackstone-owned BioMed Realty acquired this five-building research complex, which spans 496,479 square feet.

The second-largest sale involved the MUSE campus in Torrey Pines, which is a three-building life science space.

Diversified Properties sold this asset to Breakthrough Properties for $159 million in early February.

This property includes 185,976 square feet located at 3030, 3040, and 3050 Science Park Road.

An average of $346 per square foot marked the selling price of office assets in San Diego, notably higher than the national average of $194 per square foot and an increase from the metro’s value of $196 per square foot recorded in September.

San Diego claimed the third spot nationally for sale prices per square foot, following Manhattan ($448 per square foot) and the Bay Area ($356 per square foot).

Among its competitors, San Diego surpassed markets such as Austin ($221), Phoenix ($190), and Portland ($152).

In terms of the development pipeline, San Diego ranked fourth among its peer markets, with nearly 2.6 million square feet of competitive office space under construction across 16 properties as of May.

This accounted for 2.3 percent of the total stock, well above the national average of 0.9 percent.

Austin takes the lead in development size, boasting 3.9 million square feet underway, followed by the Bay Area (3.3 million square feet) and Houston (3.2 million square feet).

In contrast, Denver had a mere 818,679 square feet under construction.

The largest ongoing projects include nearly 1.6 million square feet across five major initiatives.

The most significant project is a 426,927-square-foot facility at 4135 Campus Point Court, which Alexandria Real Estate Equities is constructing as part of its Alexandria Point campus.

This vast office complex is fully preleased by Bristol-Myers Squibb Co., with completion projected for early 2026.

The Campus at Horton also has significant developments in progress, including the 377,977-square-foot Building 100, located in downtown San Diego.

Developed by Stockdale Capital Partners, the project broke ground in 2020 and is anticipated to be finished by the end of this year.

This year saw developers begin two new projects totaling 336,000 square feet, while there were four office deliveries amounting to 856,484 square feet, reflecting a notable 44.6 percent decrease year-over-year.

Deliveries included Buildings A and B at the Pacific Center, a life science campus being developed by Sterling Bay and Harrison Street in the Sorrento Valley submarket.

These two office low-rises mark the initial phase of a planned four-building project.

Despite the thriving investment activity and development, San Diego’s office vacancy rate reached 23.1 percent in May, reflecting a significant 460-basis-point increase from the previous year.

This figure exceeds the national average of 19.4 percent, placing San Diego among the highest vacancy rates in the nation.

Most peer markets also reported vacancy rates above the 20-percent threshold: Austin (26.7 percent), the Bay Area (25 percent), and Denver (23.6 percent).

Despite this surge in vacancy rates, San Diego’s asking rents averaged $45.17 per square foot in May, above the national average of $33.15 per square foot, with an annual increase of 6.2 percent.

Though San Diego’s average rent remains lower than that of the Bay Area ($52.92 per square foot) and Austin ($46.11 per square foot), it surpasses similar markets like Denver ($30.63 per square foot) and Phoenix ($28.48 per square foot).

Notable leasing activity in the first five months was marked by the J. Craig Venter Institute, which secured a 50,000-square-foot lease at IQHQ’s Research and Development District, moving its West Coast office to the latest building in RaDD known as The Core.

With underutilized office spaces prevalent in San Diego, the trend of office-to-residential conversions has gained traction among owners and investors.

The Yardi-powered Conversion Feasibility Index evaluates suitable U.S. markets for residential repurposing by using a CFI score, categorizing properties based on their potential for conversion.

In San Diego, 21 buildings totaling 1.8 million square feet are classified in the Tier I category, noted for their high conversion feasibility with scores between 90 to 100 points.

Most of these buildings are Class B offices situated predominantly in the downtown area.

Additionally, there are another 173 properties totaling 14 million square feet in Tier II, with scores from 75 to 89 points.

One prominent conversion project currently underway is Five Thirty B, a 250,181-square-foot office mid-rise built in 1966.

With a CFI score of 90 points, the property was acquired by Ambient Communities for redevelopment into a 180-unit multifamily property, complete with new amenities.

This transformation signals a shift in the market as owners adapt to changing demands.

Finally, the flex office segment in San Diego has seen expansion, with the footprint climbing to 2.5 million square feet as of May, marking a 19 percent increase since September.

San Diego now holds a position above Austin (1.8 million square feet) but falls short of major markets such as Houston (4.5 million square feet), Denver (3.7 million square feet), Phoenix (3 million square feet), and the Bay Area (2.9 million square feet).

The share of shared office space represented 2.4 percent of the total leasable office area, surpassing the national average of 2 percent, and outperforming Denver (2.2 percent), Phoenix (2.0 percent), and Austin (1.8 percent).

Regus remains the leading flex office provider with the largest footprint in San Diego, covering 331,333 square feet.

Following Regus are M.C. Strauss Co. (265,623 square feet), Spaces (133,292 square feet), Premier Workspaces (122,948 square feet), and WeWork (105,282 square feet).

image source from:commercialsearch

Benjamin Clarke