Last year, San Diego's medical office market built on momentum that began in 2020. In 2021, medical office absorption was up 77% with medial office users taking 280,000 square feet of space, according to research from JLL. The positive absorption helped push medical office vacancy down two basis points to 5.8%, the lowest levels since 2006.

The leasing activity has put upward pressure on medical office rents, which have increased more than 5% in the last 12 months to $4.53 per square foot for class-A asking rents, $3.90 per square foot for class-B rents and $3.04 per square foot for class-C asking rents. Vacancy rates also show significant variation between product quality. Class-A product has the lowest vacancy rate at 3.7%, showing that there is a flight to quality. Class-C spaces, on the other hand, have an 8.1% vacancy rate.

On the investment sales side, capital stuck to the sidelines through the first half of the year as leasing activity gained momentum. Then, in the second half of the year, investment activity surged. In all, investment sales totaled $606 million in San Diego last year, and assets traded at an average $387 per square foot, representing record pricing, with a 5.6% average cap rate.