Thursday, July 16, 2026
JLL report: San Diego office market recovery continues but remains uneven
San Diego's office market posted a second straight quarter of positive net absorption, led by Eastgate's resurgence, while downtown and Sorrento Mesa continued to struggle with weak leasing and tenant downsizing, according to JLL's second-quarter report.
San Diego's office market continued its gradual recovery during the second quarter, posting positive net absorption for a second consecutive quarter, according to a new report from commercial real estate firm JLL.
Leasing activity, however, remained below historical averages and performance varied widely by submarket.
The report found the region's recovery was led by Eastgate, where landlords attracted tenants by lowering rental rates and reconfiguring large office floors into smaller speculative suites aimed at midsize businesses. The strategy helped the submarket record 57,000 square feet of positive net absorption during the second quarter.
Meanwhile, other major office markets, including Sorrento Mesa and downtown San Diego, continued to struggle with limited leasing of large office blocks and tenant downsizing as companies renewed leases or relocated to smaller spaces.
San Diego's overall leasing volume totaled about 1 million square feet during the second quarter, matching the previous quarter but remaining below the 2025 quarterly average of 1.2 million square feet and well below long-term historical levels.
JLL said demand continues to favor high-quality Class A office space, particularly in submarkets with limited premium inventory and little new construction. Landlords in those areas have largely maintained asking rents despite broader market challenges.
The report also pointed to renewed demand from defense and aerospace companies, particularly in suburban employment centers.
JLL cited General Atomics' purchase of a 130,000-square-foot Class A office building for $25 million, approximately one-third of its 2022 sale price, as an example of owner-users taking advantage of lower property values.
The firm said the office market is benefiting from the continued redevelopment of older office buildings into other uses, helping reduce available inventory and stabilize market conditions. San Diego's office inventory has contracted by a net 3.7 million square feet during the past five years through demolitions and conversions.
As a result, the region's office vacancy rate declined by 0.4 percentage points compared with a year earlier, while average asking rents increased 4.3% year-over-year, according to the report.
JLL expects leasing activity to strengthen during the second half of 2026 as several large tenants actively search for space. The firm said growth is expected to be driven by technology companies, continued defense spending, and the emerging clean energy sector, which has benefited from venture capital investment and public market funding.
Among the largest office leases completed this year were the County of San Diego's 37,986-square-foot renewal in La Mesa, Procopio, Cory, Hargreaves & Savitch's 28,933-square-foot renewal in Del Mar Heights, and Carlsmed's 24,839-square-foot expansion in Carlsbad, according to JLL.
The year's largest office sales included Kilroy Sabre Springs, purchased by Axos Bank for $124.5 million; Columbia Place in downtown San Diego, which sold for $103.5 million; and Mission City in Mission Valley, which traded for $60.5 million, the report said.
Leasing activity, however, remained below historical averages and performance varied widely by submarket.
The report found the region's recovery was led by Eastgate, where landlords attracted tenants by lowering rental rates and reconfiguring large office floors into smaller speculative suites aimed at midsize businesses. The strategy helped the submarket record 57,000 square feet of positive net absorption during the second quarter.
Meanwhile, other major office markets, including Sorrento Mesa and downtown San Diego, continued to struggle with limited leasing of large office blocks and tenant downsizing as companies renewed leases or relocated to smaller spaces.
San Diego's overall leasing volume totaled about 1 million square feet during the second quarter, matching the previous quarter but remaining below the 2025 quarterly average of 1.2 million square feet and well below long-term historical levels.
JLL said demand continues to favor high-quality Class A office space, particularly in submarkets with limited premium inventory and little new construction. Landlords in those areas have largely maintained asking rents despite broader market challenges.
The report also pointed to renewed demand from defense and aerospace companies, particularly in suburban employment centers.
JLL cited General Atomics' purchase of a 130,000-square-foot Class A office building for $25 million, approximately one-third of its 2022 sale price, as an example of owner-users taking advantage of lower property values.
The firm said the office market is benefiting from the continued redevelopment of older office buildings into other uses, helping reduce available inventory and stabilize market conditions. San Diego's office inventory has contracted by a net 3.7 million square feet during the past five years through demolitions and conversions.
As a result, the region's office vacancy rate declined by 0.4 percentage points compared with a year earlier, while average asking rents increased 4.3% year-over-year, according to the report.
JLL expects leasing activity to strengthen during the second half of 2026 as several large tenants actively search for space. The firm said growth is expected to be driven by technology companies, continued defense spending, and the emerging clean energy sector, which has benefited from venture capital investment and public market funding.
Among the largest office leases completed this year were the County of San Diego's 37,986-square-foot renewal in La Mesa, Procopio, Cory, Hargreaves & Savitch's 28,933-square-foot renewal in Del Mar Heights, and Carlsmed's 24,839-square-foot expansion in Carlsbad, according to JLL.
The year's largest office sales included Kilroy Sabre Springs, purchased by Axos Bank for $124.5 million; Columbia Place in downtown San Diego, which sold for $103.5 million; and Mission City in Mission Valley, which traded for $60.5 million, the report said.
