San Diego office developers continued to be bullish with development at cyclical high

Although recent development has seen an uptick, deliveries this cycle are still significantly below last cycle

September 28, 2020
Under development (s.f.)
Deliveries (s.f.)
  • A limited supply of Class A large block space, strong recent tenant demand and rising rents has propelled San Diego construction to 16 projects totaling 2.1 million square feet. Prior to COVID-19, investors had been confident in the market's office fundamentals. From 2018 to 2020, the average annual square footage under construction sat near the 2 million square foot mark, exceeding the 10-year average of 1.3 million square feet. But even with this surge in development, the current cycle 10-year average is 16 percent below the previous 10-year cycle of 1.6 million square feet.

  • The lack of available land has kept a lid on development of office product. Recent deliveries have kept pace with office absorption, with new supply and demand balanced over the past 5 years. Vacancy has stabilized at just below 11.0 percent, its lowest point since 2007.

  • Most of the recent construction is in Downtown, UTC/Eastgate, and Del Mar Heights. The overall market is 38 percent preleased. The Downtown submarket is the center of this development, responsible for 44 percent of the total construction pipeline in San Diego, although projects in Downtown currently have no pre-leasing.

  • With the current slowdown in demand and a large amount of product expected to deliver in 2020, vacancy is likely to rise in the coming quarters.