San Diego Office Market Ranks Among the Hottest of North America’s 30 Leading Tech Hubs

San Diego’s submarket of Sorrento Mesa ranks among the top five in North America for office lease rate growth, according to CBRE’s annual Tech-30 report.

San Diego’s slight decline in tech jobs during 2021 and 2022 did not deter office rent growth during the same time period (2.9%). San Diego’s Sorrento Mesa continues to be the city’s premier tech submarket, ranked fifth among Tech-30 submarkets in office-rent growth (14%). It was the only submarket from last year's rankings to maintain a top-5 position. Even though San Diego overall posted a negative net absorption (-1%), Sorrento Mesa continued to post a positive net absorption of 3%. Net absorption, a proxy for office demand, measures the net amount of space newly occupied against that newly vacated.

“San Diego's tech-hub submarket of Sorrento Mesa has shown it's resiliency in the face of economic headwinds and has outperformed other tech-centric submarkets in North America,” said Evan Knudson, first vice president at CBRE. “Supply remains the second most constrained in North America due to a record number of office-to-lab conversions, and demand has fared better than most other submarkets given the rich talent base enjoyed by many of tech's heavy hitters which call Sorrento Mesa home.”

The report, now in its 12th year, measures the tech industry’s impact on office demand and rents in the 30 leading tech markets in the U.S. and Canada, as well as select tech-heavy submarkets.

Tech’s share of total office leasing activity has increased each quarter this year, even amid reduced U.S. office leasing activity overall. In Q3 2023, the tech industry reclaimed its position as the top sector in office leasing activity after losing its lead in Q1 2022. Tech’s share of office leasing was 16.5% (7.3 million sq. ft.) in Q3 2023, up from a 10-year low of 9.3% (3.9 million sq. ft.) in Q4 2022. Tech moved back ahead of the finance and insurance sector, which claimed a 15% share of Q3 office leasing activity.

The report features a new analysis of the correlation between venture capital (VC) funding and leasing activity by AI companies. The top five U.S. markets to receive VC funding across all sectors between H1 2019 and H1 2023 (San Francisco, Silicon Valley, New York, Boston and Los Angeles/Orange County) also have the highest amount of office leasing activity by AI companies in that timeframe, according to CBRE’s analysis of its office leasing and CB Insights data.

Since 2019, AI companies have leased 7.5 million sq. ft. of office space across the top five markets. San Francisco and Silicon Valley were the most active markets for AI leasing by volume, each with over 2 million sq. ft. leased.

Total U.S. tech industry employment remains well above pre-pandemic levels, even though tech software and services employment growth decelerated to 0.4% in H1 2023 from 3% in H2 2022. September 2023 marked the fewest tech industry layoffs since June 2022, according to CBRE’s analysis of data from job search firm Challenger, Gray & Christmas.

San Diego’s tech workforce of 37,350 people amounts to 10% of all office-using positions in the area. Another growth driver: Tech companies claimed nearly one-fourth of the $1.2 billion in venture capital funding awarded to San Diego companies in this year’s first half.

“One thing to keep an eye on is San Diego's influence in the artificial intelligence world with San Diego having attracted the seventh most investment dollars in that space since 2019. Typically, we see venture capital investments positively correlated with demand for office and research and development space. San Diego will likely see continued tech industry growth over the coming years,” added Mr. Knudson.

To read the Tech-30 report, click here.