Office Real Estate Demand Hits Post-Pandemic High in San Diego and Orange County as RTO Policies Tighten

Office real estate demand in San Diego and Orange County is accelerating heading into mid-2026, driven by stricter return-to-office policies, technology-sector expansion, and a constrained supply pipeline, according to first-quarter market data published by Voit Real Estate Services.

The Southern California findings align with a broader national trend. The VTS Office Demand Index reported that national office demand reached its highest level since before the pandemic in Q1 2026, rising 18% from the close of 2025 and 13% year over year. The national office vacancy rate fell to 17.8% through March, a decrease of 210 basis points from Q1 2025, according to Yardi Matrix.

Return to Office Emerges as a Key Demand Driver

Corporate return-to-office strategies are increasingly influencing leasing activity. According to a report by Careerscape, 55% of Fortune 100 companies now require a full-time, five-day-per-week return to the office. Several of Southern California's largest employers have adopted stricter in-office schedules effective in 2026, including Paramount/Skydance, which is expected to require five days on-site, and the Walt Disney Company and NBCUniversal, both mandating four days on-site.

California state workers will also be required to return to in-person work four days a week beginning July 1, following a memo from Gov. Gavin Newsom's office.

Ryan Masiello, Chief Strategy Officer of VTS, noted in a release that while national demand has surged, local conditions vary considerably. "The AI boom continues to be a dominant headline for office, and markets that lack a major tech presence, or are without a primary growth lever in another industry, are seeing declines in demand," Masiello said.

Beyond technology, the finance and legal sectors also posted double-digit demand gains quarter over quarter nationally, according to the VTS Office Demand Index. In Los Angeles, demand reached its highest level since Q2 2024, with a 20% quarter-over-quarter increase, driven in part by the legal and creative sectors following California's recent expansion of film tax credits.

San Diego Office Real Estate: Downtown Struggles, Suburban Markets Tighten

San Diego County's overall office vacancy rate held at 13.61% in Q1 2026, virtually unchanged from Q4 2025, though it increased 63 basis points year over year. The availability rate dipped slightly year over year to 16.35%.

The most acute challenge remains the Downtown submarket, where the vacancy rate stood at 34.02% across 16.2 million square feet, despite a decrease from 35.80% in Q4 2025. Several office owners have exited the Downtown submarket, selling buildings at steep discounts. The most recent significant transaction involved two downtown San Diego office towers purchased by GANMI Corp., headed by former SoftBank executive Eric Gan, for $103.5 million, or $146 per square foot — a 53.7% discount from 2021 pricing. That transaction follows the Irvine Company's six-building exit from the Downtown submarket in 2025.

Outside Downtown, conditions are considerably tighter. The Central region, encompassing 26.6 million square feet, recorded a vacancy rate of 9.73%, including the Kearney Mesa submarket at 8.76% across 11.3 million square feet. The Southern and Eastern Areas, totaling 8.4 million square feet, posted a vacancy rate of just 4.85%.

San Diego's average asking office rent rose 2.6% year over year to $3.15 per square foot in Q1 2026, driven in part by recent new construction. However, effective rates have declined sharply from two years ago due to landlord concessions including free rent and promotional first-year rates.

Kimberly Clark, Esq., Senior Vice President and Partner at Voit Real Estate Services' San Diego office, described the market as one in transition. "San Diego County's office market continues to navigate a period of transition, shaped by evolving workplace strategies, uneven demand across submarkets, and broader economic uncertainty," Clark said. "While challenges remain, renewed leasing activity in late 2025 and early 2026, combined with adaptive leasing strategies, points toward a market that is gradually stabilizing rather than declining."

Orange County Office Market Posts Third Consecutive Quarter of Positive Absorption

Orange County's office real estate market recorded more consistent improvement in Q1 2026. Vacancy fell 103 basis points from Q4 2025 to 13.52%, and declined 196 basis points year over year from 15.48% in Q1 2025. The market posted positive net occupancy growth of 292,601 square feet in the quarter — the third consecutive quarter of positive absorption and a reversal from the negative 333,333 square feet recorded one year earlier.

The average asking lease rate rose to $2.82 per square foot in Q1 2026, up from $2.70 per square foot in Q4 2025.

New construction is limited to two build-to-suit projects in Orange County, keeping supply pressure well below historical norms. According to the Voit Real Estate Services market report, the central question for the market has shifted from whether tenants will return to how quickly corporate mandates and technology-driven demand will translate into broad-based occupancy gains.

Stefan Rogers, Senior Vice President and Partner at Voit Real Estate Services' Irvine office, characterized the market as entering a new phase. "Vacancy has moderated from recent highs, and leasing activity remains steady," Rogers wrote. "The recovery may be uneven, but the market appears to be entering a new phase — one shaped less by the immediate effects of the pandemic and more by the emerging influences on how, where, and why people work."

AI and Technology Sector Reshaping Office Demand Outlook

Nationally, the technology sector has been the primary driver of office demand growth, with AI, cloud computing, and cybersecurity hiring cited as key contributors. San Francisco saw the sharpest demand increase of any California market tracked in the VTS report, with a 70% jump from Q4 2025 to Q1 2026 and a 124% year-over-year gain, attributed largely to its position at the center of the AI expansion.

In Orange County, the Voit Real Estate Services report notes that the defining issue for the market has shifted from the persistence of remote work to how AI and technology adoption will reshape the physical workplace. The report projects that broad-based demand recovery will continue into 2027, with the foundation for the next market cycle described as already in place.

Voit Real Estate Services tracks the San Diego and Orange County office markets as part of its quarterly market report series. Full Q1 2026 reports for both markets are available on the Voit Real Estate Services website.