The Tech Industry’s Big Impact on San Diego Real Estate

San Diego is becoming one of the top technology hubs in the country—and it is having a big impact on the market’s office real estate activity. In San Diego, technology sector has accounted for 18% of total office leasing in the market in 2019, just behind life sciences, the industry the market was known for. Over the last decade, technology presence has increased steadily, averaging 16% of total leasing activity in the market.

“Because the tech sector has been such an important driver of growth in this business cycle, rents have increased faster in tech markets than in the rest of the U.S. metro areas and most substantially in tech critical cities such as San Diego,” Jolanta Campion, research director of San Diego for Cushman & Wakefield, tells GlobeSt.com. “For occupiers, any sharp increase in rents may make these markets less attractive.”

Rental rates have also surged as a result of technology occupiers. Average asking rents have increased 48% in the last decade, compared to 34% increase in office rents in the US. Class-A rents have increased 44% during the same period. “To put these numbers in perspective, during the last recession, that lasted nearly two years, an average asking rent decreased by 20%, reflecting the worst-case scenario market has ever experienced during the recession,” says Campion.

While rental rants have surged in San Diego, the growth has been far below more mature technology hubs, like San Francisco. “Compared to San Francisco where average rent has increased 165% since its Great Recession low in Q4 2009, San Diego offers less expensive space, plenty of tech talent and is located an hour flight away from San Francisco tech hub,” says Campion. “Shorter commute times, an incredible year-round weather and an abundance of outdoor activities can also be added to the list of benefits San Diego offers.” As a result, San Diego has been a top market for new technology companies and growing firms.

Geographically, the central county and Eastgate has been the most popular submarket for technology companies. In 2019, 88% of all technology office leasing occurred in the central county. “2019 was a banner year for Sorrento Mesa as well with respect to leasing velocity and overall net absorption. The story of the submarket continues to be the trend of creative office and biotech conversions and repositions,” says Campion. “Tech companies have been leasing all sizable blocks of space both existing and new development. Both product types continue to drive demand and leading market rents.”