The San Diego office market is continuing to recover. In the third quarter, the market posted 269,000 square feet of positive absorption, marking the second consecutive quarter of growth, according to a new report from Colliers. Prior, San Diego had five consecutive quarters of negative absorption.

The office leasing demand in the third quarter reached levels not seen since 2018 and 2019, and according to the report, it is a sign that the office market has turned a corner. The activity has triggered new class-A development from major companies, like Kilroy Realty, American Assets Trust, and Lincoln Property Co. In June, Kilroy acquired a 1.3-acre land site for $42 million in Downtown San Diego to build a 275,000-square-foot office tower. The property is directly adjacent to the firm's 220,000-square-foot 2100 Kettner development, illustrating the firm's bullishness on the market. In total, there is 1.4 million square feet of new office space under construction.

The leasing activity represents true market absorption because no new projects delivered in the third quarter. Most of the positive absorption in the quarter was in the class-A market. By the end of the year, Colliers expects class-A office to net positive demand for the year, despite negative absorption in the first quarter. Kilroy was also among the companies to benefit from the demand in the third quarter. In September, the firm completed three major lease transactions in San Diego with publicly traded life science and biotech companies. The lease deals total 330,000 square feet, and will involve the redevelopment of current office space into life science facilities.