The San Diego CRE Story the Headline Vacancy Number Misses

If you only read the top-line stats, San Diego commercial real estate looks tired right now. Industrial vacancy is up. Office availability downtown is historically high. Net absorption has gone negative more than once in the past year. None of that is wrong. But it's also not the whole picture — and if you're only watching the aggregate number, you're going to miss where the actual demand is concentrating.

Start With What the Headline Number Actually Says

Depending on whose report you're reading, San Diego industrial vacancy is somewhere between roughly 7% and 9.7% right now — Colliers and Voit put it near 7%, Cushman & Wakefield at 7.3%, Matthews at 9.3%, Kidder Mathews at 9.7% and up 140 basis points year over year. That's not a typo. Different brokerages measure different inventory sets and use different definitions of "available." I'd treat any single headline vacancy stat with some suspicion until you know what's actually being counted. What is consistent across all of them: vacancy is up year over year, deliveries have outpaced absorption, and rents have gone flat to slightly down — Kidder Mathews has average asking industrial rent at $1.46/SF NNN, down 3.7% year over year.

Office is softer still. Downtown vacancy sits around 14.5%, up from 13.9% a year ago, with CBD availability near a third of total inventory at the start of the year — among the highest of any major downtown in the country.

Now Look at Who's Actually Signing Leases

Underneath that, there's a second story, and it isn't subtle once you know where to look. San Diego's defense-tech and AI-robotics cluster is raising and spending real capital, and it's showing up as real square footage:

• Shield AI, the San Diego-based defense AI company behind the Hivemind autonomy platform, closed a $1.5B raise at a $12.7B valuation earlier this year.
• Saronic Technologies, an Austin-based autonomous maritime defense company, signed an 80,000 SF lease in Downtown San Diego specifically to be closer to U.S. and allied maritime partners in the Pacific — and said at signing it expected to roughly double its headcount to around 600.
• Firestorm Labs, a San Diego-based additive-manufacturing defense startup building modular drones, raised a $47M Series A backed in part by Lockheed Martin Ventures and Booz Allen Ventures.
• Brain Corp, the SoftBank- and Qualcomm Ventures-backed robotics AI company, has been building out its San Diego base for years.

None of that shows up cleanly in a countywide vacancy number, because it isn't countywide. It's concentrated — around MCAS Miramar and NIWC Pacific, in Kearny Mesa and Sorrento Valley, in pockets of Downtown near the maritime and defense-adjacent tenant base. That's the pattern worth watching: aggregate softness sitting right next to real, capital-backed concentration in specific submarkets and specific tenant profiles.

Why This Matters for How You Play It

This is exactly the setup that rewards being selective rather than reading the market top-down. At Urban Oak, this is where our three lanes come in:

• Core+ Repositioning — older flex and R&D product in the right submarkets (power capacity, security specs, proximity to the defense and maritime base) can often be repositioned for this tenant profile without a ground-up build.
• Value-Add — softening broader vacancy means real pricing opportunity on assets in and around Miramar, Kearny Mesa, and Sorrento Valley, ahead of demand catching up to them.
• Build-to-Suit — fast-scaling, well-capitalized defense tech tenants (Saronic is the clean example) often can't find existing product that fits their spec and will commit to purpose-built space.

The Honest Caveat

I'd be skeptical of anyone telling you this is a rising-tide story for all of San Diego CRE. It isn't. The broader industrial and office markets are genuinely soft, and I wouldn't underwrite a deal on the assumption that AI and defense demand bails out a mediocre asset in the wrong submarket. This is a concentrated, tenant-specific thesis — which is exactly why it's still underpriced in a lot of places.

If you're looking at a San Diego asset and want a second opinion on whether it sits inside or outside this pattern, that's a conversation I'm happy to have.

— Sach