San Diego Office Prices Remain High, Development Solid

San Diego has continued its solid office completions trend through the first half of 2024, while developers keep adding office projects to their slates. The combination of the two led to the metro’s office pipeline becoming one of the best performing in the nation.

Meanwhile, San Diego has topped all Western metros for office prices 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 metro, as San Diego outpaced peer markets for the share of coworking out of existing office inventory.

Significant deliveries and construction starts

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

The market’s development pipeline includes Campus at Horton Plaza’s Building 100, a 371,683-square-foot office project that is expected to come online this August. Developed by Stockdale Capital Partners, the property is part of a 1 million-square-foot mixed-use master-planned campus 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, the metro saw the highest price per square foot, followed by Los Angeles ($368 per square foot) and San Francisco ($352 per square foot).

The investment volume placed San Diego in 11th place nationally, with Washington, D.C., leading the ranking ($999 million), while the Bay Area occupied the second position ($795 million).

Some of the priciest office deals in the metro included 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 was 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 in May. The percentage has fluctuated since the start of 2024—from 17.2 percent in January, posting continuous increase. However, the metro’s index was the lowest among similar markets, outperforming the Bay Area (20.0 percent), Houston (22.5 percent) and Austin (23.3 percent).

Notable office leases that closed in the first five months of the year included the 230,000-square-foot, long-term expansion signed by Pfizer Oncology in March. The tenant will occupy two of the three buildings of Torrey View, a 520,000-square-foot 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., a supplier of integrated products and services for defense contractors and military forces.

A hotspot for coworking spaces

There were 1.0 million square feet of shared office space in San Diego as of May, more than in Raleigh-Durham, N.C. (831,637 square feet), Nashville, Tenn. (651,613 square feet) and Tampa, Fla. (535,267 square feet). The metro’s coworking space as a 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).

The coworking operators with the largest San Diego footprint included Regus, leading the rankings with 299,162 square feet, followed by WeWork (146,227 square feet), Premier Workspaces (122,948 square feet) and Spaces (99,970 square feet).