Southern California’s commercial real estate market is two separate beasts, and they’re only about 90 miles apart. Looking at Class A office space in Orange County shows prices somewhere between $3.50 and $4.50 per square foot. Drive down to San Diego for the exact same quality of space, and suddenly you’re at $2.80 to $3.80 instead.
Even though these two markets sit right next to one another, the business needs in each one are completely different. San Diego has become the biotech capital of Southern California, and this single industry drives just about everything – from the way buildings get designed to the lease terms that landlords are willing to negotiate. Most biotech firms want to set up either near UC San Diego or in one of the big science parks up in Torrey Pines. Orange County went a different direction and built up multiple industries instead. Aerospace businesses have taken over parts of Huntington Beach, and financial services firms own Newport Beach at this point. The pandemic hit these markets in ways that caught everyone completely unprepared, and we’re still working through all the pricing and availability changes that came from it.
Vacancy rates paint an interesting picture of what’s actually happening in each region. San Diego’s office vacancy climbed all the way to 21.1% by 2024. But Orange County has managed to hold steady at 17.3% even with all the remote work pressure that everyone’s been dealing with. These percentages don’t tell you everything, though – you’ll find opportunities and challenges underneath those numbers that any business needs to dig into.
Where you land depends on what your business specifically needs to run successfully – not some generic comparison between the two markets.
Here are the main differences between these two competitive Southern California markets!
Different Sectors Have Different Needs
San Diego’s commercial real estate market revolves around the industries that have defined this city for decades – life sciences and biotech. These businesses cluster heavily around UC San Diego and throughout the Torrey Pines corridor. Illumina’s campus is one of the most recognizable landmarks in the area, though it’s not alone. Dozens of other biotech firms have set up shop nearby. The challenge with these tenants is that they all need extremely specialized lab spaces. These spaces need sophisticated HVAC systems, heavy-duty electrical infrastructure, and plenty of other technical features that standard office buildings just don’t have.
The concentration of biotech firms has created an interesting cluster effect that feeds on itself and continues to grow stronger. Once a big biotech company establishes its headquarters in an area, all the suppliers and service providers that they need start to follow. Then venture capital firms realize they need to be close to their investments, and they open offices nearby, too. Soon, you will have specialized construction firms that actually know how to build clean rooms and configure lab spaces, and they will set up local teams to meet all the demand.
Orange County has gone in a completely different direction in its commercial real estate strategy. Instead of putting all their eggs in one basket, the market there deliberately spreads exposure across multiple industries. Boeing has a large aerospace presence in Huntington Beach. Drive through Newport Beach and you’ll see the glass towers filled with financial services firms. Tech businesses have turned Irvine into their own playground – the whole city is dotted with these campus-style developments that look more like college quads than traditional office parks.
This diversity does change the basic ways that buildings get designed, marketed, and leased in Orange County. A Fortune 500 aerospace company is going to come to the negotiation table with completely different needs than a venture-backed biotech startup would. They want different lease terms, they have different bargaining power in negotiations, and their needs for aspects like expansion rights or early termination clauses are worlds apart.
Trying to choose between these two markets for your business means these differences have practical consequences that you need to think about. A biotech company that sets up in Santa Ana might find it hard to find the right vendors and build the partnerships that they need to succeed. The supporting ecosystem that makes San Diego so attractive to life sciences firms just isn’t there in Orange County to the same degree. An aerospace supplier could feel somewhat isolated in San Diego. Defense contractors do have a presence, but they don’t drive the market conversation the way that biotech does.
Available Space and Market Conditions
San Diego has a lot more empty office and industrial space available now than Orange County does. Vacancy rates in San Diego run somewhere between 15 and 18 percent, and Orange County sits at a lower 12 to 15 percent. Those numbers tell us that San Diego has more empty space. But that’s not the whole story beyond just the vacancy rates.
The biotech industry drives a big portion of this vacancy difference. Venture capital disappeared for a while there, and biotech companies had no choice except to shrink their operations or shut down completely. All of a sudden, tons of sublease space hit the market at the same time, especially in areas like Sorrento Valley and UTC. This situation can work out quite well for businesses that know how to make use of it.
Different neighborhoods have completely different vacancy situations. Downtown San Diego has office buildings with entire floors that sit empty, and Carlsbad’s industrial properties are almost completely occupied. Cross over into Orange County, and Newport Beach offices are still very hard to find – even though everyone and their brother is still working from home at least part of the time. Every zip code has its own market situation.
Last year was great for tenants in San Diego. Businesses asked for extended free rent periods and big tenant improvement allowances, and landlords were actually ready to accept these requests. Property owners desperately wanted to get their spaces filled and were ready to make big concessions to close deals. At the exact same time, in Orange County, landlords could be selective about who they rented to because multiple tenants were competing for the same properties.
This vacancy gap between San Diego and Orange County is definitely temporary. San Diego’s biotech sector will bounce back at some point and start to absorb all that extra space again. For now, though, any company that needs to lease space in San Diego has the negotiating power that just doesn’t happen in Orange County’s much tighter market.
Location and Infrastructure Business
Orange County has built out this massive freeway network over the decades that connects every big business district. The 405 and the 5 run north all the way to Los Angeles, and then the 55 and 73 create the east-west connections that help tie the whole region together. The entire area functions as one large business district where you can reach LA’s ports in about an hour, maybe an hour and fifteen minutes on a bad day.
San Diego has taken a completely different path to regional connectivity. The trolley expansion has made it much easier for workers to commute without cars, and North County finally has some decent transit options after years of having nothing. San Diego International Airport might not have as many domestic flights as John Wayne, and that’s something I hear about from clients pretty regularly. The direct connections to Asia and Mexico actually matter quite a bit more for most businesses. If your company deals all the time with Pacific Rim partners or runs any operations across the border, San Diego suddenly turns into a much more strategic location.
The talent pool situation shows these infrastructure differences in interesting ways. Orange County businesses can recruit from throughout Los Angeles County because the freeway connections make daily commutes fairly manageable. A software engineer in Long Beach can reasonably commute to Irvine every day without losing their mind. San Diego operates on a completely different model. Businesses there usually tap into Tijuana’s workforce, and they especially look for engineering and technical roles. The border crossing can be a big headache at times. For businesses with maquiladora operations, though, the commute is actually faster than most typical LA commutes during rush hour. That cross-border talent brings specific skills and perspectives that you just won’t find anywhere else in California.
Each region’s infrastructure shapes what kinds of businesses do well there and determines who they can realistically hire.
How Cities Use Incentives for Investment
San Diego and Orange County compete for commercial real estate investors, and they’ve each developed their own playbook of financial incentives to win them over. The strategies are actually quite different once you look into what’s happening. These two regions have put plenty of thought into what makes their markets attractive. And they’ve put together incentive packages that play to their own particular strengths.
San Diego’s Opportunity Zones have become a very attractive option for investors who are looking to defer capital gains taxes from their other investments. East Village and National City are perfect examples of how much these zones can accomplish for a community. Investors can put their money into these areas, and they’ll get substantial tax benefits as the neighborhoods themselves get revitalized and updated at the same time. The city has thrown its weight behind this federal program because it’s finally bringing investment into the neighborhoods that have needed it for years.
Orange County operates its Opportunity Zones as well, especially in Santa Ana and Anaheim. The interesting part is that these Orange County zones were already quite developed when they received their federal designation. The investors still get all the same tax benefits, but they’re working with a more mature infrastructure and an established business ecosystem from day one. Orange County went in a completely different direction altogether – they’ve focused on international businesses by creating foreign trade zones. Any company that imports products on a regular basis can pay less in customs duties and make its entire logistics operation run much smoother.
The San Diego Promise Zone designation is proof that federal programs have brought new life to entire neighborhoods when all the pieces come together. Extra resources and focused attention are finally flowing into the areas that investors had passed over for decades, and the results speak for themselves.
Pick the Right Location for Your Company
The right choice depends on what type of business you’re running and where you are in your company’s growth trajectory. Tech businesses that need to scale fast usually pick Orange County these days for some solid reasons. The infrastructure is already there and ready for fast growth, and Los Angeles is close enough that partnership opportunities are just a quick drive away. Life sciences and biotech businesses usually go to San Diego instead. This pattern makes plenty of sense because San Diego already has all the labs and equipment that these businesses need.
Market timing is a big thing in this, too. San Diego has high vacancy rates right now that actually are tenants’ favor when they’re negotiating lease terms. Landlords in that area have become a lot more flexible lately because they need to fill the space. Of course, the benefit for tenants won’t last forever. Orange County is a different story – the market there has been predictable for years. Businesses that want to plan five or ten years out usually value that predictability, and they’re willing to pay for it instead of chasing short-term deals.
The two regions have different talent benefits, though they draw from different sources. Orange County benefits from its proximity to USC and UCLA graduates who bring strong business and technical backgrounds to the workforce. San Diego has UCSD as its anchor institution. But it also has something unique – strong access to cross-border talent from Tijuana. Businesses that need bilingual staff or want to tap into Mexico’s growing tech sector find this very valuable.
Companies that do most of their business in Los Angeles can cut costs and save drive time if they base themselves in Orange County instead. Your employees are a lot more likely to stay when the office location actually makes sense for the life they want to live. Orange County has all these master-planned communities that work for families who want quality schools and the whole suburban setup. But San Diego pulls in a completely different crowd – the ones who need their surfing and hiking and can’t live without being near the beach.
Maximize Your San Diego Rental Property
Southern California gives you two very different commercial real estate markets, and the choice between Orange County and San Diego depends completely on what your business actually needs to succeed. These two regions have spent decades developing their own distinct strengths, and a location that works perfectly for one company could be completely wrong for another. Orange County has an established corporate infrastructure and those deep business connections that most businesses depend on for their growth. San Diego operates differently, though – it has particular innovation clusters and newer opportunities in industries that are expanding fast. Savvy businesses have figured out they don’t necessarily have to choose just one market anymore. They’re actually using these two regions in clever ways and putting different parts of their operations wherever it makes the most sense.
These two markets continue to evolve in interesting ways as businesses demand different features from their locations. San Diego’s life sciences sector has absolutely exploded over the past few years, and now it’s pulling in all kinds of adjacent industries too, from specialized tech firms to advanced manufacturing operations. This whole interconnected ecosystem has materialized over the past two decades, where almost nothing existed before. Orange County hasn’t been idle either. It’s been moving well past its traditional corporate foundation and has started to attract much younger businesses that want the professional resources combined with that famous California quality of life. These transformations don’t happen overnight, of course. They build up slowly over the years, and then suddenly you see that the entire market has shifted underneath you.
Commercial real estate decisions stay with you for years and in some cases for decades. Vacancy rates and rental prices are worth watching, of course. But the difference between a decent choice and an exceptional one usually depends on your ability to look past the immediate numbers and think about what’s next.
At Palm Tree Properties, we’ve spent years in San Diego’s real estate market, and we’ve learned something important along the way – every property needs its own particular attention when you want it to perform well. We help investors get the most out of their properties by actively managing them and knowing the local market inside and out. Learning about rental income potential in San Diego or discovering the opportunities available here is much easier when you have the experience. We do free rental property evaluations that show you just how to increase your investment returns. We also have plenty of resources that break down what works in property management across San Diego.
