Thursday, July 16, 2026
San Diego industrial market sees vacancy rise as leasing demand remains steady
The market recorded negative direct net absorption of 339,000 square feet during the quarter, reversing the positive 517,300 square feet absorbed during the first quarter, according to Kidder Mathews.
San Diego's industrial real estate market showed signs of stabilization during the second quarter of 2026 as leasing demand remained relatively healthy despite rising vacancy rates, softer property values and continued negative net absorption, according to a new report from commercial real estate brokerage Kidder Mathews.
The market recorded negative direct net absorption of 339,000 square feet during the quarter, reversing the positive 517,300 square feet absorbed during the first quarter. However, the performance marked an improvement from the negative 517,300 square feet posted during the second quarter of 2025.
Despite the quarterly decline, the industrial market posted a positive net absorption of 178,300 square feet through the first half of 2026, the report found, compared with negative 928,500 square feet during the first six months of 2025.
The region's vacancy rate continued to edge upward as businesses absorbed recently completed industrial space. The vacancy rate rose to 9.4% at the end of the second quarter, up 0.1 percentage point from the previous quarter and 0.4 percentage points from a year earlier. Total availability increased to 13.3%, reflecting slower tenant move-ins and continued leasing of buildings completed earlier this year, Kidder Mathews said.
No new industrial projects were completed during the second quarter.
Leasing activity totaled 2.6 million square feet across 322 transactions in the second quarter, down 5.7% from the previous quarter and 13% from a year ago. Even so, year-to-date leasing activity remained only 3.8% below last year's pace.
San Diego's average asking rents increased slightly during the second quarter to $1.47 per square foot on a triple-net basis, although they remained 0.7% below year-ago levels as landlords competed to fill larger and second-generation industrial spaces, according to Kidder Mathews.
Industrial investment sales also remained subdued in San Diego. Properties totaling 1.3 million square feet sold in 47 transactions worth a combined $253.4 million during the quarter, the report stated.
Average sale prices declined to $232.60 per square foot from $303.58 in the first quarter and $287.80 a year earlier, reflecting more conservative pricing by investors amid selective lending conditions.
San Diego's broader economy continued to provide support for industrial demand despite slower employment growth in some sectors. Manufacturing employment totaled 109,400 jobs in May, while trade, transportation and utilities employment reached 215,700 jobs. Both sectors were down 0.6% from a year earlier.
The county's unemployment rate fell to 3.9% in May from 4.1% in April, remaining below California's 5.3% unemployment rate.
Kidder Mathews said industrial tenant demand remains concentrated in modern, well-located facilities offering features such as higher clear heights, efficient loading areas, outdoor storage capacity and convenient access to major transportation corridors.
Among the quarter's largest lease transactions were Amazon at Gillespie Field iPark in El Cajon, Waymo at Heritage Industrial Center in Chula Vista and Rock West Composites in Otay Mesa.
The brokerage said Otay Business Park remains the region's largest near-term industrial development, with more than 612,000 square feet scheduled for completion during the third quarter.
Looking ahead, the report said tenants are expected to retain negotiating leverage while vacancy remains elevated. However, a slowing construction pipeline and the absence of new project deliveries during the second quarter should allow the market to gradually stabilize as existing vacant space is leased.
The market recorded negative direct net absorption of 339,000 square feet during the quarter, reversing the positive 517,300 square feet absorbed during the first quarter. However, the performance marked an improvement from the negative 517,300 square feet posted during the second quarter of 2025.
Despite the quarterly decline, the industrial market posted a positive net absorption of 178,300 square feet through the first half of 2026, the report found, compared with negative 928,500 square feet during the first six months of 2025.
The region's vacancy rate continued to edge upward as businesses absorbed recently completed industrial space. The vacancy rate rose to 9.4% at the end of the second quarter, up 0.1 percentage point from the previous quarter and 0.4 percentage points from a year earlier. Total availability increased to 13.3%, reflecting slower tenant move-ins and continued leasing of buildings completed earlier this year, Kidder Mathews said.
No new industrial projects were completed during the second quarter.
Leasing activity totaled 2.6 million square feet across 322 transactions in the second quarter, down 5.7% from the previous quarter and 13% from a year ago. Even so, year-to-date leasing activity remained only 3.8% below last year's pace.
San Diego's average asking rents increased slightly during the second quarter to $1.47 per square foot on a triple-net basis, although they remained 0.7% below year-ago levels as landlords competed to fill larger and second-generation industrial spaces, according to Kidder Mathews.
Industrial investment sales also remained subdued in San Diego. Properties totaling 1.3 million square feet sold in 47 transactions worth a combined $253.4 million during the quarter, the report stated.
Average sale prices declined to $232.60 per square foot from $303.58 in the first quarter and $287.80 a year earlier, reflecting more conservative pricing by investors amid selective lending conditions.
San Diego's broader economy continued to provide support for industrial demand despite slower employment growth in some sectors. Manufacturing employment totaled 109,400 jobs in May, while trade, transportation and utilities employment reached 215,700 jobs. Both sectors were down 0.6% from a year earlier.
The county's unemployment rate fell to 3.9% in May from 4.1% in April, remaining below California's 5.3% unemployment rate.
Kidder Mathews said industrial tenant demand remains concentrated in modern, well-located facilities offering features such as higher clear heights, efficient loading areas, outdoor storage capacity and convenient access to major transportation corridors.
Among the quarter's largest lease transactions were Amazon at Gillespie Field iPark in El Cajon, Waymo at Heritage Industrial Center in Chula Vista and Rock West Composites in Otay Mesa.
The brokerage said Otay Business Park remains the region's largest near-term industrial development, with more than 612,000 square feet scheduled for completion during the third quarter.
Looking ahead, the report said tenants are expected to retain negotiating leverage while vacancy remains elevated. However, a slowing construction pipeline and the absence of new project deliveries during the second quarter should allow the market to gradually stabilize as existing vacant space is leased.
