San Diego industrial demand dropped sharply in Q1 2026. After three years of historically tight fundamentals, the market posted negative net absorption of 554,857 square feet — a swing of more than 1.1 million square feet from the same quarter a year ago, when the market absorbed positive 645,773 square feet.
That's not a blip. It's a trend reversal worth understanding before you sign a lease, underwrite an acquisition, or price a renewal.
Here's what the data actually shows — and what it means for tenants, investors, and landlords working in the San Diego market right now.
The Numbers (Q1 2026)
All figures from CBRE San Diego Industrial Market, Q1 2026, cross-referenced against Cushman & Wakefield San Diego MarketBeat Q1 2026.
Vacancy: 6.7% overall, up 20 basis points quarter-over-quarter and 50 basis points year-over-year. Cushman & Wakefield's methodology puts it slightly higher at 7.3% including sublease space — the difference reflects how each firm defines their tracked inventory, but the direction is the same: vacancy is rising. Asking rents: $1.41 per square foot (NNN), down 1.9% quarter-over-quarter and down 4.6% year-over-year. That's a meaningful correction from peak rents. Landlords who were holding firm at $1.50+ in 2024 are moving. Net absorption: Negative 554,857 square feet in Q1 2026. For context: Q4 2025 was modestly positive at 106,003 square feet. Q1 2025 was strongly positive at 645,773 square feet. The reversal is sharp. Construction pipeline: 946,266 square feet under construction across 11 active projects — down from 44 active projects a year ago. Developers are pulling back. Q1 2026 delivered 125,076 square feet of new space; deliveries are declining.
What's Driving the Shift
Three things are happening at once.
Demand normalization. The 2021–2023 industrial boom — driven by e-commerce expansion, supply chain reshoring, and pandemic-era logistics buildout — pulled forward years of occupancy growth. Some of the tenants who absorbed space aggressively in that cycle are now right-sizing. That square footage is coming back to market. Tariff and trade uncertainty. San Diego's industrial market has a significant cross-border component, particularly in Otay Mesa, where large-bay distribution and manufacturing space is tied to maquiladora supply chains. Ongoing U.S.–Mexico trade policy uncertainty is creating a pause in expansion decisions for companies that depend on cross-border logistics. You don't sign a 7-year lease on 100,000 square feet of distribution space when you don't know what your tariff environment looks like in six months. New supply absorbing slower. The 946,000 square feet still under construction will deliver into a market where demand has softened. With only 11 active projects (versus 44 a year ago), developers are already reading the room — but the pipeline already in motion still needs to be absorbed.
What This Means If You're a Tenant
This is the best leasing environment for industrial tenants in San Diego in at least three years.
Vacancy is rising, rents are falling, and the construction pipeline is contracting — which means the window where you have negotiating leverage is now, not six months from now when new supply dries up and the market tightens again.
Specifically:
Free rent is back on the table. In the 2022–2023 market, landlords weren't offering concessions on anything. That changed last year and has continued into Q1 2026. On a 5–7 year lease, two to four months of free rent is realistic in many submarkets, particularly where new supply has delivered. Asking rents are negotiable. The $1.41/sf average is an asking figure. Effective rents — what tenants are actually paying after concessions — are lower. Don't anchor to the asking number. Tenant improvement allowances are improving. Landlords competing for tenants in a softer market are more willing to contribute to buildout costs. If you need dock doors, HVAC improvements, or office build-out, now is the time to push for it. Timing matters. If your lease expires in the next 12–18 months, start your search now. The negotiating environment will shift when the pipeline dries up — and with only 11 projects under construction, it will tighten again faster than the headline vacancy number suggests.
What This Means If You're an Investor
Softening rents and rising vacancy require more careful underwriting than the 2021–2023 market rewarded.
A few considerations for buyers looking at San Diego industrial right now:
Submarket matters more than ever. The county-wide 6.7% vacancy figure masks significant variation. Otay Mesa — with the most new supply delivered over the last 36 months — is running softer than Kearny Mesa, which has constrained land and limited new construction. Underwriting a Kearny Mesa building the same way you'd underwrite an Otay Mesa big-box is a mistake. Rent growth assumptions need revisiting. Deals underwritten to 3–4% annual rent growth during the boom cycle are going to miss if current trends continue. Model flat-to-declining rents for the next 12–24 months in submarkets with new supply, and test your deal against that scenario before you buy. Distressed opportunities may emerge. Projects that delivered into Q1 2026's negative absorption environment — particularly large-format distribution — may face lease-up pressure. If a landlord needs to fill space fast, the buyer who can move without a financing contingency has real leverage.
CBRE's H2 2025 Cap Rate Survey — which tracks 3,600 estimates across more than 50 U.S. markets — found that cap rates held steady in the second half of 2025, with nearly all respondents believing cap rates have peaked. For San Diego industrial, that's a meaningful signal: if cap rates have peaked, buyers who've been sitting on the sideline waiting for further compression may be waiting for something that doesn't come. The better question is whether the income and rent growth assumptions in your underwriting hold up in a market where absorption just went negative.
What This Means If You're a Landlord
Renewals and new leases are getting harder to price at 2023 levels. The data supports what you're probably already hearing from your broker: tenants have more options, and they know it.
A few things worth considering:
Price to market, not to peak. Asking $1.50/sf when the market is at $1.41/sf and moving down means longer vacancy. An extra month of vacancy costs more than a concession. Get ahead of your rollover. If you have leases expiring in the next 12–18 months, starting renewal conversations now — before tenants begin touring alternatives — gives you more control over the outcome than waiting. Concessions are cheaper than vacancy. Free rent, TI allowances, and early termination options are tools, not defeats. A tenant who signs a 5-year lease with two months free rent is worth more than a vacant building at asking.
The Submarket View
San Diego industrial is not one market. The county has at least six distinct submarkets running different dynamics:
- Otay Mesa — Highest new supply, softest conditions, most tenant leverage. Cross-border demand is paused on tariff uncertainty.
- Kearny Mesa — Tighter vacancy, limited new construction, less landlord flexibility. Central county location sustains demand.
- Miramar / Mira Mesa — Last-mile and regional distribution corridor. Tracking broader logistics softening but closer to balance than Otay.
- Sorrento Valley — R&D flex and life sciences adjacency. Different demand driver than pure industrial — tracks the biotech cycle more than logistics.
- Carlsbad / North County — Constrained land, higher rents, demand driven by defense, medical device, and lifestyle-adjacent tenants.
- Chula Vista / South Bay — Emerging, with new development tied to cross-border and port-adjacent logistics.
If you're making a leasing or investment decision, the county average is context. The submarket is the actual market.
The Bottom Line
San Diego industrial is correcting after a historic run. Vacancy is rising, rents are falling, the construction pipeline is contracting, and demand — driven by trade uncertainty and occupancy normalization — has pulled back.
That's not a crisis. It's a cycle. And cycles create different opportunities depending on where you sit.
If you're a tenant, this is your moment. If you're an investor, underwrite carefully and know your submarket. If you're a landlord, price to reality and get ahead of your rollover.
If you're working through a specific deal in the San Diego industrial market — lease negotiation, acquisition underwriting, or landlord strategy — I offer free 30-minute consultations. Book a time here.
*Sources: CBRE San Diego Industrial Market Figures, Q1 2026. Cushman & Wakefield San Diego MarketBeat, Q1 2026. CBRE U.S. Cap Rate Survey, H2 2025.*
*Data reflects market-level averages. Individual submarket and property conditions vary. Verify current comps before making leasing or investment decisions.*