San Diego Office Prices Remain High, Development Solid

San Diego continued its trend of significant office completions through the first half of 2024, while developers are continuing to add office projects to their slates. These have made the metro’s office pipeline one of the best performing in the nation. Meanwhile, San Diego office prices led all Western area metros through the first five months of 2024, as interest in life sciences space continues to remain high.

As of May, there were 4.2 million square feet of office space under construction in San Diego, across 25 office properties. The figure represents 3.8 percent of total stock, well above the national average of 1.4 percent and outpacing larger peer markets—The Bay Area, at 2.3 percent and Houston, at 1.0 percent—or even gateway markets like San Francisco, where the rate stood at 3.0 percent. Shared space is also a significant boon for the market, as San Diego outpaces peer markets for the share of coworking out of existing office inventory.

Significant deliveries and construction starts

Year-to-date through May, developers delivered 1.8 million square feet of office space across six properties, representing 3.8 percent of total stock. One significant project that came online since the start of the year is Research and Development District’s Phase I, two-building life sciences campus developed by IQHQ. The two properties, dubbed The Rise and The Vida, were delivered this January and total more than 1.1 million square feet of space. The $1.5 billion project represents the first urban life sciences waterfront development to come online in San Diego.

Another significant office project under construction is Campus at Horton Plaza’s Building 100, a 371,683-square-foot office project that is expected to be completed in August this year. Developed by Stockdale Capital Partners, the property is part of a 1 million-square-foot mixed-use master-planned development in downtown San Diego that represents one of the largest adaptive reuse projects in the Western region.

The highest average sale price per square foot in the West

Year-to-date through May, 637,234 square feet of space across 10 properties changed hands in San Diego for a total of $269 million, at an average sale price of $422 per square foot. Across Western markets, San Diego saw the highest sale price per square foot, followed by Los Angeles’ $368 per square foot and San Francisco’s $352 per square foot.

Nationally, the total sales volume in San Diego placed the metro in 11th place, with Washington, D.C., leading the rankings ($999 million), and The Bay Area placing second ($795 million).

Some of the priciest office deals of the year in the metro includes Advin Biotech’s $23 million acquisition of a 41,034-square-foot flex office property at 10140 Mesa Rim Road, in San Diego’s Sorrento Valley submarket.

Another notable deal is Turner Impact Capital’s approximately $18 million acquisition of Chula Vista Medical Arts I, a medical office building totaling 62,503 square feet in Chula Vista, Calif. In March, Arrimus Capital paid $17 million for Chesapeake Corporate Center, a 50,562-square-foot office building at 9573 Chesapeake Drive in the metro’s Kearny Mesa submarket.

High vacancy rates endure

The office vacancy rate in San Diego reached 18.5 percent year-to-date through May. The percentage fluctuated since the start of 2024 – from 17.2 percent in January, posting continuous increase. Across similar markets, San Diego’s was the lowest, outperforming The Bay Area (20.0 percent), Houston (22.5 percent) and Austin (23.3 percent).

Notable office leases that closed recently include the 230,000-square-foot, long-term expansion signed by Pfizer Oncology at Torrey View, a 520,000-square-foot life science project. The deal closed in March and the tenant will occupy two of the three buildings of the life science campus, owned by Breakthrough Properties, a joint venture between Bellco Capital and Tishman Speyer.

In May, Drawbridge Realty signed a 16,485-square-foot expansion at Discovery Corporate Center, a three-building office campus in the metro’s Rancho Bernardo submarket. The tenant is Leonardo DRS Inc., an Italian-owned supplier of integrated products and services for defense contractors and military forces.

A hotspot for coworking spaces

As of May, there was 1.0 million square feet of shared office space in San Diego, more than in Raleigh-Durham (831,637 square feet), Nashville (651,613 square feet) and Tampa (535,267 square feet). San Diego’s rate of coworking space as percentage of total leasable office space reached 2.0 percent, above the national average of 1.8 percent, and more than in The Bay Area (1.2 percent) and Houston and Austin (1.7 percent).

Year-to-date through May, the cop companies in the sector with the largest footprint in San Diego include Regus, leading the rankings with 299,162 square feet of space, followed by Sola Salons, with 155,139 square feet, WeWork, with 146,227, Premier Workspaces, with 122,948 square feet and Spaces, with 99,970 square feet.

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