The Carlsbad office leasing market is making a slow recovery to normalcy after the shift to work at home from 2020. Carlsbad has always been a desirable San Diego submarket with a diversifying tenant mix, including back office, life sciences, and technology firms. Its accessibility is supported by two freeways and a Coaster station, facilitating access from San Diego, Orange County, and southwest Riverside. The area also benefits from a significant number of well-educated households with STEM degrees. Most projects are fairly recently built since the 1980s and provide high functionality, modern finishes and amenities that draw Tenants to the area.
LEASING VOLUME
Between 2016 and 2019, Carlsbad averaged nearly 200,000 SF of quarterly leasing volume. In 2024, only one quarter reached half that level. Remote work policies at tech companies in the region have reduced the demand for office space. Available space has increased by 400,000 SF since early 2020, with approximately 20.3% of inventory currently available for lease—the highest level since 2018. However, the vacancy rate remains below the 2019 year-end figure.
RENT GROWTH
Increased availability has moderated rent growth to 1.3% year over year. Tenants are in a favorable position to negotiate concessions such as free rent and increased build-out allowances, providing them with leverage. Up to five months of free rent are often achievable on five- to seven-year terms. Higher tenant improvement work typically correlates with less free rent, and starting rents for Class A space are generally within 5% of the asking rate.
CONCLUSION
Limited pipeline activity indicates minimal near-term speculative development. The previous wave of speculative construction before 2020 caused the vacancy rate to approach 20%, and no immediate supply-side pressure on vacancy or rent growth is anticipated. The office market has largely stabilized over the past six quarters, albeit at a subdued level, and significant changes in demand are not expected in the next year. A return to long-term benchmark rent growth is unlikely in the near-term forecast.
ADDITIONAL INSIGHTS
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