San Diego’s economy is in full expansion mode as we head into 2016. The base indicator for economic — and real estate market — performance is San Diego’s thriving jobs market, which surpassed pre-recession numbers back in 2013, a year ahead of the state average. Further, average income continues to increase at a healthy 3% annual pace.

San Diego’s real estate market has made headlines recently due to the rapid price recovery occurring across the residential sector. However, home sales volume in 2015 remained stuck at 28% below pre-recession levels while residential construction increased at a snail’s pace.

The good news is San Diego’s commercial market is evidencing a more solid recovery.

Industrial is faring best in San Diego, with a vacancy rate below that experienced during the Millennium Boom, at 3.7% at the end of 2015. A low vacancy rate means rising lease rates and high demand for new construction. 900,000 square feet of industrial space were under construction in San Diego as of Q4 2015, according to Voit Real Estate Services. Most of this new construction is planned for areas along the north side of the San Diego region, in cities like Miramar, Carlsbad and Poway.

Office is more mixed, with lower-than-average construction completions, though this has helped to keep vacancies from rising. The office vacancy rate is just above 12% in San Diego as of Q4 2015, while lease rates continue to increase. Retail construction has been mostly nonexistent during this recovery, though vacancy rates remain low.

Multi-family is on its way to a full recovery, with residential turnover rates on an upward trajectory and construction rising more quickly than single family residence (SFR) construction. Much of this recovery is occurring in the downtown area, with new high rises and mixed-use buildings planned to replace low-lying buildings. Specifically, East Village has experienced the bulk of downtown’s new development during the recovery, according to Civic San Diego.

The biggest project on the horizon in East Village is a 41-story and 21-story mixed-use development, consisting of 500 residential units and 19,000 square feet of commercial space. “Broadway Block,” as it is called, will take over a city block between Broadway and C street, and Seventh and Eighth Avenues, according to San Diego Source.

On the other end of the downtown area, a 24-story mixed-use building is planned for Little Italy. This will include 220 residential units and about 6,000 square feet of designated commercial space. Lennar Multifamily Communities owns the project, planned for 520 W. Ash Street.

A forecast for commercial development

As San Diego adds more jobs, workers will need more places to live. Much of this workforce consists of young workers just entering the workforce (in fact, most of the nation’s workforce consists of individuals born after 1982, according to Pew Research Center). And with the debilitating rise in home prices, they are looking first for rentals and then for affordable condos. For this reason, and reasons of convenience, this generation tends to prefer housing near all the jobs and amenities the downtown area has to offer.

Therefore, expect multi-family construction to continue to dominate the downtown landscape as builders meet rising demand. Industrial will continue to be profitable in the coming years, increasing with the employment market in equal stride. Office will also improve with the rising job market, but at a slower pace since office availability and vacancy both remain above desirable levels as we start off 2016.

San Diego agents and brokers: How do you see the commercial and residential real estate market performing in 2016 and beyond? Share your thoughts in the comments!