Commercial Real Estate News / General CRE / San Diego, CA vs. San Jose, CA: Which Is Better for Businesses?

San Diego, CA vs. San Jose, CA: Which Is Better for Businesses?

Published: 07-28-22 Category: General CRE

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

Trying to decide whether you should bring your business to San Diego, CA or San Jose, CA?

There are a lot of factors to consider before you make a decision. San Jose is in the tech start-up capital of the world, Silicon Valley, while San Diego is close to Los Angeles. And those are just the geographical advantages of the two.

Here, we’ll discuss other key location factors that you’ll need to look for when you’re building or relocating a business.

Population Comparisons

First, let’s look at how the population compares in San Diego and San Jose. The demographics and household income of each area can have more or less of an effect on your business depending on the business activity you’ll be conducting.

For example, if you’re a retail business that sells luxury goods, a low-income area with a small population likely won’t be as lucrative as a higher-income, heavily populated area.

Average Demographics

Two important demographics to look at are population size and median age. These stats are significant if you’re looking to hire a large number of people for your workforce.

When you plan on adding a lot of jobs to an area, you need a pool of qualified work-age candidates. A smaller or older population may not provide that.

San Diego is home to 1,381,611 people. According to the Census Bureau, the population in San Diego has decreased by 0.3% since 2020. The median age of San Diego residents is 35.2.

The population in San Jose is smaller than San Diego at 983,489. The Census Bureau shows a decrease in population of 3.1% since 2020. The median age in San Jose is 37.1.

Median Household Income

The median household income in San Diego is $83,454.

The median household income in San Jose is $117,324.

Commercial Real Estate Comparisons

Now that we’ve looked at demographic comparisons, let’s look specifically at the market for commercial real estate in San Diego and San Jose.

Average Commercial Rents

Compare average commercial rents to help you decide which area is better for your business.

Knowing how much you can expect to spend on rent will help you plan your budget and make a decision about where to locate.

The average commercial rent space in San Diego is $42.06 per square foot.
The average commercial rent space in San Jose is $49.98 per square foot.

As you can see, San Diego is a bit less expensive than San Jose. While cost is not the only factor, it’s a big one for businesses making a decision about where to locate their space.

Commercial Vacancy Rates

The commercial vacancy rate tells you the volume of vacant commercial spaces available for rent. Often, when an area has a lower vacancy rate the market is more competitive.

The commercial vacancy rate in San Diego is 13.02%.
The commercial vacancy rate in San Jose is 14.46%

The overall commercial vacancy rates are pretty even, but you should also consider the vacancy rate for the specific sector you’re in.

CRE Market Outlook for 2022

Currently, the commercial real estate market in San Diego is picking up especially with the retail and office space activity.

Retail vacancy has decreased to 5.3% since last quarter. Office space vacancy decreased from last quarter to 12.3%.

The commercial real estate market in San Jose is making gains in the industrial market: vacancy in this sector fell from 3.2% in 2021 to 1.8% in the first quarter of this year.

Commercial Activity Comparisons

Analyze commercial real estate activity in the locations you’re comparing so you can find out which is more profitable for your specific business activities.

Retail: In-Person Shopping Versus Online Shopping

San Diego has many business districts and small communities within the city, making it a beneficial area for retail businesses to locate.

In fact, San Diego has proven to be “pandemic resilient” – many businesses weathered the storm during 2020 and into 2021 and have come out stronger on the other side.

Because San Jose is in the start-up capital of the world, the focus on retail is less than in San Diego.

Industrial: Warehouse Storage Activity

Industrial space includes warehouse storage and/or production facilities. If you’re in the market for an industrial space, the demand is high in both cities.

In San Diego, the overall industrial vacancy was 2.1%, marking the lowest vacancy rate ever recorded.

And as we mentioned earlier, the industrial market is gaining traction in San Jose where the industry vacancy rate is just 1.8%.

San Diego has slightly higher inventory levels, which may give you more (or better) options to choose from.

Office: Office Space Activity

According to Commercial Cafe, there are over 1,000 commercial office spaces for rent in San Diego.

Over 46% of the market share is Class A office space, while Class B office space accounts for approximately 36.8% of the market.

In San Jose, there are 690 commercial office spaces for rent. In the San Jose office space market, Class A space accounts for amost 26% of the market, while Class B office space represents about 35.2%.

Multifamily: Vacancy Rates & Leasing Activity

Multifamily investment activity took a big hit during the pandemic. But there’s good news – both cities have recently seen improvements in their vacancy rates and leasing activity.

The multifamily market in San Diego is on the upswing – vacancy rates are down and average rents are up. The vacancy rate is at 4.0% and the average asking rent is $2,226.

In San Jose, the multifamily market is recovering and made good progress in 2021. The average asking rent is up to $3,080 and the vacancy rate is 5.7%.

Deciding Which Location Is Right for Your Business

When you’re deciding between two locations, you must consider all of the factors we’ve discussed here. Take this information and think about how it could affect your business, given your specific sector.

For example, if you’re looking for office space, weigh the pros and cons of locating to either San Diego or San Jose given each city’s commercial real estate activity and market growth.