Defense, government, health care reshape local office market

Defense, government, professional services, and health care companies are emerging as the main sources of demand in San Diego's office market, replacing technology and life sciences as the region's dominant growth sectors, according to a new report from Cushman & Wakefield.

The shift follows a pullback in the investment that fueled technology and life sciences expansion from 2020 through 2023.

Among office moves involving at least 10,000 square feet, defense-related companies have generated about 350,000 square feet of positive absorption since 2024, while technology and telecommunications companies have recorded about 600,000 square feet of negative absorption, the report said.

"San Diego's office market is seeing a meaningful shift in the industries driving demand," Jolanta Campion, senior research director for Southern California at Cushman & Wakefield, said in a statement.

Defense-sector expansion has included a build-to-suit facility for Leidos at Campus Point in 2025 and General Atomics' acquisition of a former Apple building in Scripps Ranch. Other defense-related growth has come from mid-sized companies, including SPA, Logos Space and Monarch Quantum.

Professional and business services companies also have contributed to positive absorption since 2024. Unlike defense companies, which have included some large moves, professional services growth has been driven primarily by tenants leasing between 10,000 and 25,000 square feet.

Campion said the broader mix of office users is significant because San Diego's market is less dependent on technology and life sciences than it was during the previous expansion.

The report said overall office absorption has remained negative since 2023, meaning tenants have vacated more space than they have occupied. But several market indicators have improved.

Net absorption during the first two quarters of 2026 was higher than the same period last year and is expected to continue improving, according to Cushman & Wakefield.

The report found office sales activity increased from 2023 through 2025. And while sales in 2026 were slightly behind last year's pace through the second quarter, year-to-date leasing activity reached its highest level since 2022.

San Diego's economy also has remained relatively stable, although growth has been slower than historical averages. The region's employment increased by 13,400 jobs, or 0.9%, over the past year, while the unemployment rate fell from 4.1% to 3.9%, according to Cushman & Wakefield.

Employment is projected to grow 1% in 2026 and 0.8% in 2027, the report found, below the region's five-year historical average of 1.8%.

The slower pace of job creation is expected to continue limiting demand for office space, resulting in a gradual and uneven recovery, Cushman & Wakefield said.