— By Sebastian Bernt of Avison Young —
The San Diego office market is beginning to stabilize in 2025. However, recovery remains uneven amid elevated vacancy, rising sublease availability and evolving workplace strategies. While quarterly leasing activity has improved modestly— up roughly 7 percent year over year through the second quarter — overall fundamentals remain challenged.
San Diego’s total office availability rate stands at 18.2 percent as of the second quarter. This is flat from the previous quarter but still up more than 500 basis points from pre-pandemic norms. Sublease availability exceeds 2.2 million square feet, a lingering effect of corporate downsizing and the continued shift toward hybrid work models. Sublease inventory is most concentrated in suburban nodes such as UTC and Sorrento Mesa, as well as Downtown San Diego.
Demand remains strongest for Class A assets in suburban submarkets like UTC, Del Mar Heights and Sorrento Valley where tenants prioritize modern, amenity-rich properties. Even within these markets, average deal sizes have declined by 20 percent to 30 percent compared to 2019 levels, with users often consolidating space and seeking shorter lease terms.
Downtown San Diego continues to face pronounced headwinds, with vacancy topping 25 percent in several Class B and C properties. Landlords across the region remain aggressive on concessions. They’re offering tenant improvement allowances north of $80 per square foot, as well as six to 12 months of free rent on longer-term deals. As a result, while asking rents have held relatively flat due to rising operating and construction costs, effective rents have trended downward.
New construction remains limited, with 815,000 square feet currently underway in primarily build-to-suit or life science-related redevelopments. The speculative pipeline has largely stalled due to high financing costs and tepid tenant demand. Adaptive reuse is gaining traction, with several older office assets in Mission Valley, Kearny Mesa and Downtown being repositioned for residential or lab use. Office-to-lab conversions in Sorrento Mesa and Torrey Pines continue to attract investor interest.
Investment activity remains subdued on the capital markets front, with total sales volume down more than 60 percent year over year. Cap rates have expanded by 100 to 150 basis points from 2021 peaks,
reflecting pricing uncertainty and weaker leasing fundamentals. Opportunistic buyers — particularly owner-users and value-add investors — are beginning to re-enter the market, targeting well-located assets at steep discounts.
The worst may be behind San Diego’s office market, but the path forward will remain uneven. Tenants continue to reassess long-term space needs, landlords are adapting to a more flexible, tenant-driven environment and investors are recalibrating to new valuation benchmarks. That said, innovation-driven submarkets with strong life science and tech adjacencies continue to offer bright spots in an otherwise transitional landscape.
— By Sebastian Bernt, Market Intelligence Analyst at Avison Young (Western Region). This article was originally published in the July 2025 issue of Western Real Estate Business.