(From Costar Group)
The overall San Diego industrial market, which includes flex buildings, recorded its second straight quarter of positive net absorption, which measures the change in occupancy, during the first quarter. That was the first time since 2022. However, with new supply outpacing absorption during the first quarter, overall vacancy rose across the region to 9.5%, a quarter-over-quarter increase of 0.3%.
Stepping back from the broader industrial and flex market to look at only the industrial inventory in San Diego, which comprises logistics and specialized space, net absorption totaled nearly 1 million square feet during the first quarter, which was the most industrial space absorbed during a quarter since 2021. That came after occupancy increased by almost 400,000 square feet during the fourth quarter of last year. That, too, marked the first time that consecutive quarters posted positive absorption for industrial inventory since 2022.
Yet, with Amazon’s new 1.1 million-square-foot facility in Otay Mesa finishing in the first quarter, new supply outpaced demand, resulting in vacancy rising quarter over quarter by 20 basis points to 7.2%. The 10-year average for logistics and specialized inventory has been 4.4%.
Brokers report that more tenants have become engaged in the leasing market since the start of the year, with a noticeable rise in tours in South County among Fortune 500 companies. And while new leasing volume increased quarter over quarter, few large deals were signed that would mark a material rise in demand. No new leases for logistics or manufacturing space were completed above 50,000 square feet. Instead, renewals were at the forefront of activity.
Market participants have indicated that some occupiers are awaiting greater clarity around trade policy, particularly the review of the United States-Mexico-Canada Agreement set for this summer. One further complicating factor has been the rise in energy prices.
The volume of loaded northbound truck containers through the Otay Mesa Port of Entry has declined by almost 5% year over year. Without growth in northbound container truck traffic. tenants in South County have less need to increase their occupancy.
It is worth keeping an eye on leasing activity among customs brokers in South County. An increase in demand there could be a signal that other occupiers will be more likely to come off the sidelines and engage in the leasing market.
While market participants have pointed to an increase in tours in 2026, those likely need to begin translating into new leasing and absorption for the region to begin showing a meaningful and prolonged recovery.
