Rexford Industrial Seals Central San Diego’s Largest Warehouse Lease with 123,000 SQFT Deal in Kearny Mesa

Rexford Industrial Realty Trust has completed the largest new warehouse lease in Central San Diego in years, signing an undisclosed tenant for its recently finished 123,492-square-foot facility at 8888 Balboa Ave. in Kearny Mesa.

The deal represents a bright spot in San Diego County’s industrial market, which is gradually rebounding after a construction boom created pockets of oversupply, particularly in southern submarkets like Otay Mesa. The lease—the first new transaction exceeding 100,000 square feet in Central San Diego in several years—suggests that demand for well-located, modern warehouse space remains strong despite broader economic headwinds.

Evan McDonald, executive vice president at Colliers, who brokered the transaction, emphasized the property’s competitive advantages in San Diego’s constrained industrial landscape. The building features 111,706 square feet of warehouse space and 11,786 square feet of two-story offices, along with premium specifications including 36-foot clear heights, ESFR sprinkler systems, rooftop solar panels, and 20 dock-high loading positions.

The clear height specification is particularly significant, McDonald noted, as it governs stacking capacity and operational efficiency—and only three Kearny Mesa buildings offer such dimensions.

Lease terms were not disclosed. Kearny Mesa’s central location and proximity to major transportation routes make it one of the most sought-after industrial submarkets in San Diego.

The Rexford transaction arrives as San Diego’s industrial sector navigates challenging conditions. According to Newmark’s Q2 2025 San Diego Industrial Market Report, the market reached a 10-year high vacancy rate of 7.8 percent, up 200 basis points over the past year, following 10 consecutive quarters of net absorption losses. Year-to-date net absorption through Q2 totaled negative 1.3 million square feet.

The market’s struggles stem partly from a development surge that flooded certain submarkets with new supply. According to Kidder Mathews, elevated construction costs driven by tariffs and volatile material pricing, particularly for steel and aluminum, continue to challenge developers. Meanwhile, Savills reported that San Diego opened 2025 with positive net absorption, reversing significant negative absorption recorded in 2024, though vacancy has plateaued at 7.9 percent and uncertainty surrounding tariffs may stifle short-term demand.

Yet signs of stabilization are emerging. Development activity is normalizing, with construction totaling 1.2 million square feet, bringing the construction pipeline as a percentage of inventory below 1.3 percent—nearly 100 basis points below the five-year average. New project deliveries hit just 92,480 square feet in Q2, the lowest quarterly delivery volume in three years.

The market is also seeing demand shifts by property size. Matthews Real Estate Investment Services noted that while the San Diego industrial sector continues recording negative absorption levels, new demand is being driven by properties under 50,000 square feet, with logistics buildings over 100,000 square feet experiencing a slowdown and vacancy rates increasing 100 basis points year-over-year.

Economic fundamentals remain mixed. San Diego County’s unemployment rate stood at 4.0 percent in May 2025, while manufacturing sector jobs totaled 109,100, marking a 3.4 percent decrease year-over-year. However, according to Prologis executives cited by Kidder Mathews, global fragmentation is driving occupiers to duplicate infrastructure and build redundancy into supply chains, leading to increased leasing activity as companies seek to secure space closer to end users.

While Rexford’s Central San Diego lease garnered attention for its size, investment activity continued in North County. Encinitas-based Stos Partners completed two sales: a Poway warehouse at 12575 Stowe Drive and a San Marcos industrial building at 145 N. Pacific St., combining for $10.95 million.

The dual transaction reflects ongoing investor appetite for smaller industrial assets in established North County submarkets, even as the broader market grapples with elevated vacancy levels and pricing pressure. Average asking rents across San Diego fell to $1.44 per square foot NNN in Q2, down 4.2 percent over the past year, as asking rents declined from their historical peak in 2023.

The divergent fortunes of different submarkets—with Central San Diego’s Kearny Mesa commanding premium positioning while southern areas like Otay Mesa contend with oversupply—underscore the importance of location and building specifications in the current market environment. For landlords with modern, well-positioned assets in supply-constrained infill locations, the path forward appears clearer than for those competing in oversupplied peripheral markets.