San Diego Office Market Faces Leasing Decline and High Vacancy in 2026

Leasing Volume in San Diego Office Market Drops in 2026

The San Diego office market has entered 2026 facing significant challenges. Leasing volumes have continued their downward trend for the third consecutive year, falling 15-20% below the averages observed between 2015 and 2019. Notably, an estimated 50% of pre-pandemic leases remain unrolled, marking one of the highest rates nationally. According to AllView Real Estate, this is indicative of ongoing troubles within the commercial real estate sector as businesses continue to adapt to remote and hybrid work models.

San Diego Office Vacancy Rates Climb Amid Speculative Construction

San Diego's office vacancy rates are climbing, despite the city commanding one of the lowest office vacancy rates among major U.S. markets. The downtown area, however, has seen rising vacancies due to speculative deliveries, as highlighted by JLL's 2025 San Diego Office Resilience Report. Suburban Class A properties, on the other hand, continue to outperform. According to GlobeSt, tech, defense, and AI firms are expected to drive the next leasing cycle, potentially stabilizing the market in the coming years.

San Diego's Diverse Economy Supports Commercial Real Estate

Despite the challenges in the office sector, San Diego's commercial real estate market remains one of the strongest in California due to its diverse economic foundations. The industrial sector, in particular, shows robust demand and moderate vacancies, driven by logistics and manufacturing needs. San Diego's metropolitan area, home to nearly 3.3 million people, benefits from a median household income of approximately $105,780, which is about 10% higher than the state average. This economic backdrop provides a degree of resilience, according to Crexi.

Impact of Hybrid Work Models on Office Demand

The shift towards hybrid work models is significant in shaping San Diego's office space demand. According to Crexi, there has been a noticeable shift towards smaller, higher-quality office spaces, a trend that continues to reshape the leasing landscape. Companies are increasingly prioritizing flexibility and amenities, leading to a demand for spaces that can support a hybrid workforce effectively. This has left older, less adaptable office buildings with higher vacancies.

Expert Analysis: Future Trends in San Diego's Office Market

Looking ahead, experts suggest that the San Diego office market could see shifts due to broader economic trends. According to AllView Real Estate, the market is expected to stabilize with mortgage rates normalizing at around 5.9% by the end of the year. This stabilization could unlock pent-up demand, particularly if economic conditions continue to improve. RealEstateAbroad.com analysis indicates that investors should focus on high-quality, adaptable spaces to meet the evolving needs of tenants.

Future Implications for Investors and Developers

The rising vacancy rates and shifting demand patterns present both challenges and opportunities for investors and developers in San Diego. The next wave of leasing activity is likely to be driven by innovation industries such as tech and AI, requiring developers to focus on adaptable, technologically advanced spaces. Investors are advised to keep a close eye on economic indicators and changing work trends. With the potential for a 10% increase in sales activity nationally, as suggested by AllView Real Estate, the market could see renewed vigor if these conditions are met.

Summary: San Diego's Evolving Office Market Landscape

San Diego's office market is at a critical juncture as it navigates declining leasing volumes and rising vacancy rates. However, its diverse economy offers resilience, and future trends suggest potential stabilization. Investors and developers must adapt to the evolving landscape, focusing on high-quality, flexible office spaces to capitalize on the anticipated demand from key sectors like technology and defense.

Year	Leasing Volume Drop	Vacancy Rate
2026	15-20% below 2015-2019	Rising, especially downtown

• Focus on high-quality, adaptable spaces
• Monitor economic indicators closely
• Prepare for increased demand in key sectors