When it comes to San Diego's office market, there is good news and bad news. The good news: the metro's robust life science and technology sector will help to fuel leasing activity this year and drive the office recovery. The bad news: the office vacancy rate is at a nine-year high, and new construction deliveries in Downtown San Diego will push vacancy rates higher this year.

Marcus & Millichap research shows the office vacancy rate in San Diego is 16.1%, a 380 basis point increase from 2019. The class-A vacancy rate is even higher at 20.8%. Marcus & Millichap expects the rate to continue to grow another 140 basis points this year to 17.1%, the highest rate since 2009. The cause is largely due to several speculative office developments scheduled to deliver in Downtown San Diego this year. The CDB already has a 26.2% vacancy rate, and the new construction will increase the stock by 2.3%. In addition, another 750,000-square-foot project is schedule to come to market in 2022.

Still, there is plenty of room for optimism. San Diego is one of the largest life science hubs in the country, and the sector—along with technology—will likely help to fuel office leasing this year. It's already starting. The Marcus & Millichap report notes a 40% increase in lease executions in the first quarter compared to the fourth quarter 2020. Biotech and software companies were responsible for the surge.