San Diego is one of the most distinctive office markets in the United States. Anchored by a thriving life sciences and biotech corridor, one of the largest military and defense contractor concentrations in the country, and a growing technology sector led by Qualcomm, the San Diego office landscape in 2026 is defined by sharp contrasts. Suburban submarkets like Sorrento Mesa and UTC/Golden Triangle post vacancy rates below 10%, while Downtown San Diego sits above 35% availability. For borrowers seeking office building loans in San Diego, understanding these submarket dynamics is the difference between securing favorable financing and struggling to find a willing lender.
Clear House Lending provides office property financing across the San Diego metro, from bridge loans for value-add repositioning to permanent financing for stabilized biotech campuses. This guide covers the current market, loan programs, rates and terms, and financing strategies for America's Finest City.
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What Does the San Diego Office Market Look Like in 2026?
The San Diego office market entered 2026 at an inflection point. The countywide vacancy rate stands at approximately 21%, above the national average of 18.6% and up 120 basis points year-over-year. Full-year leasing activity in 2025 reached 3.7 million square feet, a 14.7% decrease from 2024. Net absorption came in at negative 132,770 square feet, though Q3 recorded the first positive quarter at 43,611 square feet.
Deal sizes have shrunk, with only two new leases above 50,000 square feet signed countywide during 2025. Average asking rents sit at approximately $45 per square foot full-service, with Class A commanding $52.46 and Class B averaging $35.05.
The headline numbers obscure what is really happening: a dramatic flight to quality in suburban, amenity-rich submarkets. Assets in UTC/La Jolla, Del Mar Heights, Mission Valley, Sorrento Mesa, and Kearny Mesa are outperforming with lower vacancy, more consistent leasing, and tenants willing to pay premium rents. The market is bifurcated, and lenders are underwriting accordingly.
How Do San Diego's Office Submarkets Compare for Financing?
San Diego's office market spans more than a dozen distinct submarkets, each with its own tenant profile, vacancy rate, and lender appetite.
UTC/Golden Triangle: The heart of San Diego's premier office corridor. Home to Qualcomm's headquarters, biotech firms, and professional services companies, UTC delivers some of the lowest vacancy rates and highest rents in the county. Class A asking rents push above $55 per square foot. Properties here access conventional financing at 65% to 70% LTV.
Sorrento Valley/Sorrento Mesa: This 8.5 million square foot submarket posts vacancy at just 7.26%, the epicenter of San Diego's life sciences real estate market. Traditional office buildings are being converted to lab and R&D space at an accelerating pace. Sorrento Mesa ranks fourth among the nation's top 30 tech submarkets for office-rent growth at 14%.
Downtown San Diego: The epicenter of stress. Overall vacancy exceeds 35%, with availability at 36.5%. Shadow space pushes effective availability to between 40% and 50% despite rent concessions. The 2.4 million square foot Horton Plaza redevelopment coming online largely empty has added pressure. Lenders approach Downtown with extreme caution.
Del Mar Heights/Carmel Valley: Favored by financial services, tech, and professional firms, with strong residential demographics, excellent freeway access, and vacancy below the metro average. Lender appetite is moderate to strong.
Carlsbad: North County alternative to UTC and Del Mar Heights, attracting biotech firms, defense subcontractors, and tech companies at more affordable rents. Moderate lender appetite.
Rancho Bernardo: Significant defense and technology concentration, including Northrop Grumman and BAE Systems. Long-term government leases make properties here attractive to lenders.
Mission Valley: Geographic center of the county with excellent freeway and transit access. Undergoing redevelopment with mixed-use projects. Moderate rents attract cost-conscious tenants and value-add investors.
Kearny Mesa: Lowest availability in the county at 11.1%. Central location, moderate rents, and diverse tenant base make it a consistent performer.
How Does the Life Sciences Sector Drive San Diego Office Demand?
San Diego is one of the three largest life sciences hubs in the United States, alongside Boston and San Francisco. The biotech industry shapes everything from submarket dynamics to lender appetite.
Many biotech companies require hybrid space combining administrative offices with wet labs, clean rooms, and R&D facilities. This has created a distinct asset class called "life sciences office" that commands premium rents and attracts specialized tenants.
The current market presents a nuanced picture. The core cluster vacancy rate has risen to 31.2%, up from 20.4% a year ago, reflecting a national funding slowdown. Asking rents have fallen for 13 consecutive quarters, and landlords are offering concessions including free rent and renovation subsidies. However, pharmaceutical giants are leveraging these conditions to secure premium space, and the long-term trajectory remains positive.
For borrowers, the life sciences connection creates both opportunity and risk. Properties in Sorrento Valley, Torrey Pines, and UTC that can accommodate life sciences tenants command premium valuations and more favorable financing terms. San Diego's emergence as a leader in cell and gene therapy, bolstered by the J. Craig Venter Institute and UC San Diego's research ecosystem, provides a long-term demand foundation.
What Are Current Office Loan Rates in San Diego?
As of early 2026, office building loan rates in San Diego span a range depending on property quality, submarket, tenant profile, and loan structure. California commercial mortgage rates start as low as 5.11% for the most qualified borrowers with stabilized, well-located assets.
For stabilized Class A office buildings with strong tenancy in preferred submarkets like UTC, Sorrento Mesa, and Del Mar Heights, conventional commercial mortgage rates range from 5.11% to 6.50%. CMBS loans for larger office properties typically price in the 5.50% to 7.00% range, with rates on the lower end for biotech-adjacent properties and the higher end for buildings with elevated vacancy risk.
Bridge loans for office repositioning and lease-up projects range from 7.50% to 10.50%, reflecting the additional risk lenders take on transitional assets. These programs are especially relevant in the current San Diego market where value-add opportunities exist in the form of older buildings that can be repositioned for life sciences or modern creative office use. For more detail, visit our guide on value-add financing.
SBA loans remain an attractive option for owner-occupants of smaller office buildings, medical office properties, and defense contractor facilities. SBA 7(a) rates range from 6.50% to 8.00%, while SBA 504 loans offer fixed rates starting around 5.64% through the CDC debenture portion. These programs are well-suited for biotech firms, medical practices, engineering companies, and professional services firms purchasing their own space.
Loan-to-value ratios for San Diego office properties currently range from 55% to 70%, with the higher end reserved for stabilized properties in strong submarkets with long-term tenants. Downtown office buildings and properties with elevated vacancy may see LTV capped at 55% to 60%. Office cap rates on Class A properties have risen to 8.4%, with Class B at 8.68% and Class C hitting 9.02%, reflecting investor caution and the repricing underway across the sector.
Use our commercial mortgage calculator to estimate monthly payments and model different financing scenarios for your San Diego office property.
What Role Do Defense Contractors Play in San Diego Office Leasing?
San Diego's defense sector is one of the largest in the nation. The region hosts Naval Base San Diego, Marine Corps Air Station Miramar, and Camp Pendleton, and the surrounding defense ecosystem generates enormous demand for office space.
Major defense contractors with significant San Diego footprints include Northrop Grumman, BAE Systems, General Atomics, Leidos, SAIC, and Booz Allen Hamilton. These tenants cluster in Rancho Bernardo, Kearny Mesa, and Sorrento Valley, where they access skilled talent and military installation proximity.
Defense contractor tenancy is highly attractive to lenders. Government contracts provide multi-year revenue visibility, and defense tenants typically sign 5 to 10 year leases with strong credit backing. Buildings leased to defense contractors can access 65% to 70% LTV and rates in the 5.25% to 6.50% range. With defense budgets maintaining bipartisan support and San Diego's position as a center for naval technology, cybersecurity, and unmanned systems research, the outlook for defense-related office demand remains robust.
What Types of San Diego Office Buildings Are Most Financeable?
Lenders evaluating San Diego office loans apply different standards based on property type.
Life Sciences and Lab-Adjacent Office: The strongest lending category in San Diego. Buildings accommodating biotech tenants command premium rents and attract funded research programs. Lenders offer LTV up to 65% to 70% and competitive rates.
Defense Contractor Office: Properties leased to government contractors on long-term, credit-backed leases represent uniquely stable investments. Expect LTV of 65% to 70% and rates at the lower end of the market range.
Medical Office Buildings: San Diego's healthcare sector, anchored by UC San Diego Health, Scripps Health, Sharp HealthCare, and Rady Children's Hospital, creates consistent demand. Lenders price medical office loans 25 to 50 basis points below general office.
Class A Suburban Office: Stabilized buildings in UTC, Del Mar Heights, and Sorrento Mesa access conventional financing at 60% to 65% LTV with rates in the mid-5% to mid-6% range.
Class B Repositioning Candidates: Bridge financing at 65% to 75% of purchase price provides capital to reposition for modern tenants or lab conversion. The exit plan is the critical underwriting factor.
Downtown Office: Class C commodity office faces the most difficult financing environment, though buildings with residential conversion potential may attract experienced adaptive reuse lenders.
What Financing Strategies Work Best for San Diego Office Investors?
The optimal financing strategy depends on the property type, submarket, and investment thesis.
Stabilized Biotech-Adjacent or Class A Acquisition: Conventional or CMBS financing at 60% to 70% LTV with rates of 5.11% to 6.50% and 5 to 10 year fixed periods. Best when weighted average lease term exceeds loan term.
Value-Add Repositioning: A bridge loan provides flexibility with 12 to 36 month terms at 7.50% to 10.50%. Our value-add financing programs are designed for these scenarios.
Medical Office Acquisition: Properties with long-term healthcare tenants qualify at premium terms with LTV reaching 70%. SBA 504 loans work well for physician groups purchasing practice space.
Office-to-Lab Conversion: Bridge acquisition plus construction financing covers total conversion costs of $150 to $300 per square foot. One of the most compelling strategies given San Diego's life sciences trajectory.
Owner-Occupied Office: Biotech firms, defense subcontractors, and professional services firms should consider SBA loan programs with down payments as low as 10%.
Distressed Downtown Acquisition: Bridge financing at 55% to 65% of current value for high-vacancy assets, with the business plan centered on lease-up or conversion.
What Are Lenders Looking for in San Diego Office Loan Applications?
Underwriting standards reflect both national tightening trends and local market dynamics.
Tenant Quality and Industry Exposure: Lenders emphasize tenant creditworthiness, distinguishing between publicly traded biotech firms or funded defense contractors and early-stage startups relying on venture capital. Financial statements are required from tenants occupying more than 10% to 15% of building income.
Submarket and Location: In this bifurcated market, a Sorrento Mesa building with 7% vacancy receives materially better terms than a comparable Downtown building at 35%+. Lenders track submarket-level vacancy, absorption, and rent trends closely.
Debt Service Coverage Ratio: Minimum DSCR of 1.25x for most office loans, with many lenders preferring 1.30x to 1.35x. Elevated-vacancy submarkets may require 1.40x or higher. Use our commercial mortgage calculator to test qualification.
Life Sciences Conversion Potential: Lenders evaluate whether buildings could be repositioned for lab use. Properties with 14+ foot ceilings, adequate column spacing, and sufficient electrical and HVAC capacity command premium valuations before conversion begins.
Sponsor Experience: Track record in the local market, particularly with life sciences or defense tenancy, significantly improves lender appetite. First-time office investors may face higher rates or lower leverage.
How Does San Diego's Economy Support Long-Term Office Demand?
San Diego's three economic pillars provide a strong foundation for long-term office demand. The region is home to more than 1,200 biotech and pharmaceutical companies. The defense sector benefits from the largest concentration of military personnel in the world. The technology sector, led by Qualcomm and a growing ecosystem of software, cybersecurity, and AI companies, provides diversification.
UC San Diego's expanding research enterprise, including the Jacobs School of Engineering and multiple medical research institutes, drives both startup formation and corporate R&D expansion. The university's planned campus expansion will generate additional demand for adjacent office and lab space.
San Diego's quality of life makes it a strong draw for talent, supporting employer demand for office space. For investors, while the current cycle is challenging, San Diego's long-term demand drivers remain intact. Properties positioned to serve life sciences, defense, and technology tenants in strong submarkets should see improving fundamentals over the medium term.
Frequently Asked Questions
What is the minimum down payment for an office building loan in San Diego?
The minimum down payment depends on the loan program and property type. For owner-occupied office buildings, SBA loans allow down payments as low as 10%. Conventional commercial mortgages for investment office properties typically require 30% to 45% down, with higher leverage available for stabilized properties in strong submarkets like UTC, Sorrento Mesa, and Del Mar Heights. Defense contractor-leased buildings and medical office properties with long-term tenants can also qualify for higher leverage.
Can I get financing for a Downtown San Diego office building with high vacancy?
Yes, but the terms will reflect the risk. For Downtown San Diego office buildings with vacancy above 25%, traditional permanent financing will be difficult to secure at favorable terms. Bridge loans at 55% to 65% of current value with rates of 8.50% to 10.50% are the most likely path, with the business plan (lease-up, repositioning, or conversion) serving as the primary underwriting factor. Given Downtown vacancy exceeding 35%, lenders will scrutinize your leasing assumptions and sponsor experience carefully.
How do lenders evaluate life sciences office space differently from traditional office?
Lenders recognize that life sciences office and lab-adjacent space in San Diego commands premium rents and attracts tenants with funded research programs. Key evaluation factors include the quality of the lab infrastructure, the funding status and creditworthiness of biotech tenants, lease structures, and the property's location relative to the Sorrento Valley/Torrey Pines/UTC life sciences corridor. Well-located life sciences office can receive terms comparable to or better than Class A traditional office in other markets.
Are SBA loans available for biotech companies and defense contractors purchasing office space?
Yes. SBA 7(a) and 504 loans are available for biotech firms, defense contractors, engineering companies, and other businesses purchasing their own office space. The SBA 504 program is particularly attractive, offering fixed rates starting around 5.64% with up to 90% financing. The key requirement is that the business must occupy at least 51% of the building. For biotech companies with fluctuating revenue tied to research milestones, SBA lenders will evaluate business financials over a multi-year period.
What is the outlook for San Diego office investment in 2026 and 2027?
The outlook is cautiously optimistic for well-positioned assets. Suburban, amenity-rich submarkets like UTC, Sorrento Mesa, Del Mar Heights, and Kearny Mesa are expected to continue outperforming as the flight to quality persists. Life sciences demand, while currently softer than its 2021-2022 peak, has long-term structural support from San Diego's biotech ecosystem. The defense sector provides reliable baseline demand. However, Downtown San Diego and commodity Class B/C office face continued headwinds from hybrid work and oversupply. Investors focused on strong submarkets with exposure to life sciences and defense should see improving conditions.
How long does it take to close an office building loan in San Diego?
Timelines vary by loan type. CMBS loans for larger office properties typically close in 60 to 90 days. Conventional bank loans close in 45 to 60 days. Bridge loans can close in 14 to 30 days, making them ideal for competitive acquisition situations. SBA loans generally require 60 to 90 days due to additional government underwriting requirements. For time-sensitive deals, explore our bridge loan programs designed for rapid execution.
For expert guidance on financing your San Diego office property, contact Clear House Lending today for a free consultation and customized rate quote. Our team understands the nuances of San Diego's office market, from biotech campuses in Sorrento Valley to defense contractor offices in Rancho Bernardo, and can match your property with the optimal loan structure.