Industrial Investment in San Diego
San Diego's industrial market keeps chugging along, but it's not the rocket ship it was three years ago. You're looking at a tight market still - vacancy's under 4% countywide - but rent growth has cooled way off from those 2021-2022 highs. The port keeps things busy, cross-border trade is solid, and nearshoring from Mexico adds another layer. Problem is land costs. New construction pencils at $200+ per square foot, which pushes buyers toward older stock. Defense contractors need space, life science companies want flex buildings, and everyone's still chasing last-mile distribution. Your OM better nail the specs because buyers are picky at these prices.
Market Context
Cap Rate Range
5.2% to 6.8% depending on location and vintage. New Kearny Mesa buildings trade at 5.2%-5.5%, older Otay Mesa around 6.5%-6.8%
Current Vacancy
3.7% countywide as of Q4 2025, down from 4.1% year prior. Tightest in Miramar at 2.8%
Rent Trend
Up 3.2% year-over-year, way down from 18% growth in 2022. Asking rents averaging $1.45/SF NNN countywide
Absorption
1.2 million square feet absorbed in 2025, mostly build-to-suit deliveries. Negative absorption in Q4 as some tenants downsized
Price Per Unit Trend
Price per square foot up 4% to $285/SF average. Quality buildings with 30'+ clear heights trading at $320-380/SF
Transaction Volume
$1.8 billion in 2025, down 22% from 2024. Larger portfolios aren't moving - most deals under $25M
Submarket Analysis
Kearny Mesa/Serra Mesa
5.2%-5.8% capVacancy
3.1%
Avg Rent (1BR)
$1.55/SF NNN
Defense contractors and life science overflow keeping demand strong. New supply limited by zoning
OM Tip
Highlight proximity to Miramar and General Atomics. Power capacity matters for tech tenants
Miramar
5.0%-5.6% capVacancy
2.8%
Avg Rent (1BR)
$1.62/SF NNN
Tightest submarket. Military contractors paying premium. Limited land for new development
OM Tip
Security clearance-friendly tenant base. Emphasize freeway access and military proximity
Otay Mesa
6.0%-6.8% capVacancy
4.2%
Avg Rent (1BR)
$1.38/SF NNN
Cross-border trade upside but higher vacancy. Nearshoring could drive demand
OM Tip
Distance from port and border crossing times matter. Truck parking and staging area key
Sorrento Valley
4.8%-5.4% capVacancy
2.9%
Avg Rent (1BR)
$1.68/SF NNN
Life science and biotech driving flex space demand. R&D users pay premium for location
OM Tip
Office component adds value. Lab-ready infrastructure worth calling out separately
National City/Chula Vista
5.8%-6.5% capVacancy
4.6%
Avg Rent (1BR)
$1.41/SF NNN
More supply coming online. Good freeway access but competing with Otay Mesa
OM Tip
Commute patterns and labor availability matter here. Mention public transit access
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What Your OM Needs to Address
Clear height specifications
Don't just say 'high ceilings' - buyers want exact measurements at eave and peak
Data to Include
Clear height at eave line, peak height, any obstructions like HVAC or sprinkler systems
Dock door configuration
Count matters but so does spacing and truck court depth. Grade-level doors increasingly important
Data to Include
Number of dock-high doors, grade-level doors, truck court depth, trailer parking spaces
Defense contractor compatibility
Security features and proximity to military installations add value for certain buyer pool
Data to Include
Security systems, fencing, controlled access, distance to Miramar/Naval Base
Power and utilities capacity
Manufacturing and data users need specific power requirements. Don't guess on electrical capacity
Data to Include
Electrical service capacity, 480V availability, natural gas service, fiber connectivity
Column spacing and floor loading
Modern racking systems need specific bay sizes. Heavy manufacturing needs reinforced floors
Data to Include
Column grid dimensions, floor load capacity per square foot, any reinforced areas
Cross-border logistics positioning
For Otay Mesa properties, border crossing efficiency affects tenant appeal and rents
Data to Include
Drive time to Otay border crossing, truck route compliance, customs broker proximity
Investment Outlook
Short Term
Expect cap rate stability through 2026. Rent growth should moderate to 2-4% annually. Defense spending cuts could hit Miramar/Kearny Mesa demand but life science expansion in Sorrento Valley provides offset. Watch for any major tenant contractions - the market's tight enough that 200,000+ SF vacancies move the needle.
Medium Term
Cross-border trade normalization and nearshoring trends favor Otay Mesa by 2027-2028. Construction costs staying high means limited new supply, which supports existing buildings. Interest rate environment will determine transaction volume more than fundamentals. Automation in warehousing could make clear height and power capacity even more important.
Long Term
San Diego's land constraints create long-term value for well-located industrial. Defense spending cycles matter but diversification into life sciences reduces military dependence. Climate change regulations might favor newer, more efficient buildings. Mexico trade relationship and Pacific Rim shipping patterns will determine whether San Diego stays competitive with Inland Empire and Long Beach.
Buyer Profile
1031 exchange buyers from expensive coastal markets, local family offices, and some institutional money for larger assets. Life science REITs active in flex space. Private equity backing build-to-rent industrial developers. Foreign capital from Mexico interested in cross-border logistics properties.
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