San Diego Industrial Vacancy Hits 7.2% — But South County Tells a Different Story | 2026 Warehouse Market Report

San Diego Industrial Market Overview

San Diego’s industrial market has entered a recovery phase following a challenging 2024. The fourth quarter of 2025 marked a turning point with measurable improvements in core metrics: vacancy declining, absorption rebounding to positive territory, and leasing activity accelerating compared to the prior year. Anchored by continued foreign trade growth through the Port of San Diego and robust manufacturing demand, the region’s 1.6-million-person workforce supports sustained logistics and distribution needs.

The region’s unemployment rate stands at 4.7%, supporting steady tenant demand. Distribution, transportation, and warehousing tenants comprise 24% of leasing volume, while manufacturing represents 20% and wholesale/defense accounts for 10% each. This diversification reduces dependence on any single sector and provides a resilient foundation for long-term market health.

Economic headwinds including higher interest rates and operational costs have moderated asking rents across all product types, creating entry opportunities for new and relocating tenants. Investment sales activity recovered in Q4 2025 with $372 million in transaction volume, up 37% QOQ and averaging $284 PSF—up 24% YOY—signaling renewed institutional capital interest.

Supply & Demand Fundamentals

Vacancy Trends

The overall direct vacancy rate in Q4 2025 sits at 7.2%, representing a 30-basis-point improvement from the 7.5% recorded in Q3 2025. This marks meaningful progress toward pre-pandemic equilibrium levels. However, year-over-year comparison reveals a 70-basis-point increase from Q4 2024’s 6.5%, underscoring the market’s modest oversupply relative to long-term averages.

Direct vacancy specifically—which excludes shadow space and owner-occupied properties—stands at 6.7%, up 90 basis points YOY. This divergence between overall and direct vacancy suggests that owner-occupied and non-traditional spaces represent approximately 0.5% of the total market. Most critically, Q1 2025 peaked at 8.3% vacancy, meaning the market has recovered 110 basis points in just three quarters—a strong indication of healthy demand absorption.

Absorption Dynamics

Year-to-date net absorption totals 456,000 square feet, marking the second consecutive quarter of positive absorption. This reversal is significant: Q1 2025 recorded negative absorption of 703,000 square feet, indicating a total swing of over 1.1 million SF into positive territory within a single year. This trajectory suggests structural market healing rather than temporary cyclical recovery.

Tenant demand remains strongest in the 20,000 to 50,000 SF range, which comprises 26% of expiring leases. Space under 20,000 SF accounts for 31% of expiring tenancies, indicating strong demand across the mid-market spectrum. Industry experts anticipate 4.2 million SF of demand over the next two years, providing substantial runway for new deliveries and lease-up of existing vacant space.

Leasing Activity

Full-year 2025 leasing volume reached 5.6 million square feet, up 17.7% compared to 4.8 million SF in 2024. Q4 2025 alone recorded 1.2 million SF of leasing activity. Notable move-ins during Q4 included Enterprise Rent-A-Car (128,000 SF), Krieger Worldwide (67,000 SF), and Zonson USA (63,000 SF), representing high-quality, credit-strong tenants that typically maintain longer lease terms. Amazon’s Otay Mesa 1.1-million-SF build-to-suit delivered in Q3 2025, positioning the region for continued logistics sector dominance.

Pricing Trends & Rent Analysis

Average asking rents across all San Diego industrial product types declined to $1.47 per square foot per month on a triple-net (NNN) basis in Q4 2025, down 0.7% quarter-over-quarter and 6.5% year-over-year. This moderation reflects a competitive leasing environment where landlords are adjusting pricing to attract and retain quality tenants.

Product-type-specific declines reveal manufacturing as the most affected segment, with rents declining 9.1% YOY. Standard warehouse space experienced a 5.9% YOY rent decline, while specialized products showed relative stability. These declines, though notable, remain within historical norms for market-correction cycles and do not indicate distress pricing.

Submarket Rent Performance

Geographic rent variation across San Diego’s three primary subregions illustrates divergent market dynamics:

• Central County: Most resilient pricing, with rents declining only 2.3% YOY. Premium locations like UTC ($3.20 PSF) and Sorrento Mesa ($3.17 PSF) command significant premiums and serve as anchors for the submarket’s stability.
• North County: Experienced a 6.2% YOY rent decline. Carlsbad and Vista captured 12% each of total leasing volume, indicating continued operator interest despite pricing pressure. Most affordable options: Vista ($1.36 PSF), Oceanside ($1.27 PSF).
• South County: Rents remain flat YOY at $1.47 PSF average, but vacancy declined meaningfully from 13.1% in Q2 2025 to 11.6% in Q4—the most improved submarket. San Ysidro represents the region’s value anchor at $1.23 PSF, serving smaller operators and e-commerce fulfillment.

Submarket Comparison

Data source: Cushman & Wakefield Q4 2025 MarketBeat

Construction Pipeline & Future Supply

San Diego’s industrial construction pipeline presents a mixed outlook. Currently, 854,000 square feet remains under active construction: 744,000 SF in Otay Mesa and 110,000 SF in Escondido. These projects represent primarily build-to-suit opportunities and planned spec developments aimed at the logistics and e-commerce sectors.

The proposed pipeline, however, stands at a substantial 6.7 million square feet. Notably, Otay Mesa accounts for 60% of this proposed supply (4.0 million SF), reflecting strategic positioning for international trade and border-adjacent logistics. This concentration poses a risk: if deliveries outpace absorption, South County vacancy could deteriorate significantly despite current positive momentum.

Given the anticipated 4.2 million SF of demand over the next two years, the market should comfortably absorb the planned construction pipeline provided leasing momentum maintains current trajectory. However, market participants should monitor quarterly absorption rates closely; a slowdown below 200K SF per quarter could signal timing concerns for speculative developments.

Pro Tip

Timing is favorable for tenant negotiations. With average rents down 6.5% YOY and competitive landlord positioning, tenants renewing leases or seeking new space should expect meaningful rent concessions, TI packages, and favorable lease terms. For operators in the 20K–50K SF range, this represents an optimal window to lock in below-market pricing before potential market tightening.

Featured WareCRE Listing

ReadySpaces Chula Vista — 505 Main Street

79,602 SF of modern warehouse space in South County’s most affordable market. 20′ clear height, 12 loading docks, and flexible lease terms. Positioned for value-conscious operators and growing SMB distributors.

Frequently Asked Questions

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