San Diego’s defense and technology corridor is experiencing a tale of two markets. While a massive $150 billion increase in Department of Defense funding signals a potential renaissance for the region’s aerospace and defense companies, the commercial real estate sector tells a more sobering story of sustained contraction and cautious optimism. The latest data from JLL reveals that total tech and defense leasing volume in San Diego has plummeted to just 0.9 million square feet year-to-date in 2025, a staggering 67 percent decline from the market’s 2018 peak of 4 million square feet. Even more concerning, current activity levels are tracking 55 percent below the eight-year average of 2.9 million square feet annually.
The divergence between the two sectors has become increasingly pronounced. Traditional technology companies, which commanded 1.9 million square feet of leasing activity at the market’s 2018 zenith, have dramatically scaled back their footprint, according to the JLL analysis. By 2024, tech leasing had contracted to just 0.4 million square feet, though early 2025 data suggests a modest recovery to 0.7 million square feet year-to-date. Meanwhile, aerospace and defense companies have demonstrated greater resilience, maintaining relatively stable demand through the downturn. Despite dropping from 2.1 million square feet in 2018 to 1.4 million square feet in 2024, defense-related leasing has consistently outpaced the tech sector since 2020.
Analysts note that the current administration’s defense priorities appear to be reshaping market dynamics. Companies specializing in artificial intelligence applications for defense, cybersecurity, and defense technology are emerging as the primary drivers of leasing activity. These firms are particularly drawn to flex R&D and industrial spaces that can accommodate both research and development activities and light manufacturing capabilities.
However, significant challenges remain. Market participants report widespread uncertainty causing delays in Department of Defense sector transactions. The complexity of government contracting cycles, combined with broader economic volatility and lingering concerns about trade policy impacts, has created a cautious environment where decision-making timelines have extended considerably. Early tariff concerns in 2025 have also cast a shadow over local commercial real estate sentiment, though the impact appears more psychological than fundamental given the defense sector’s domestic focus.
Looking ahead, JLL projects potential combined defense and tech leasing activity of approximately 1.5 million square feet for 2026—a figure that would represent improvement from current levels but still falls well short of historical norms. This projection reflects both the anticipated benefits of increased defense spending and the persistent headwinds facing the broader technology sector. The geographic concentration of San Diego’s defense cluster continues to be both an asset and a vulnerability. While the region benefits from an established ecosystem of defense contractors, suppliers, and specialized talent, this concentration also makes the market particularly sensitive to shifts in federal spending priorities and defense procurement cycles. For commercial real estate investors and developers, the market presents a complex risk-reward equation. The substantial increase in defense funding provides a foundation for optimism, but the extended timeline for Pentagon procurement and the broader technology sector’s continued retrenchment suggest that any recovery will likely be gradual rather than dramatic.
