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MULTIFAMILY PERSPECTIVE:
Sales velocity will remain sluggish through Q1 2023 similar to the 2nd half of 2022 however, opportunities remain for the astute and active investor as many buyers are on the sidelines. Sales volume has decreased due to the instability in the financing markets because of the uncertainty for what the cost of capital will actually be. Bullish investors are still aggressively seeking and purchasing multifamily assets in San Diego’s top-tier sub-markets. With values dipping and cap rates rising a bit in the tertiary sub-markets of the county, this poses an opportune time for entry-level investors to build a multifamily investment portfolio.
CAPITAL MARKETS UPDATE:
The Federal Reserve ended the year with a 50-basis-point rate hike to the federal funds rate after four consecutive 75-basis point rate hikes in an effort to fend off inflation. Further rate hikes are expected in 2023 but what does this mean for commercial real estate financing? The 10-Year Treasury peaked around 4.22% in late November and is currently in the 3.55%-3.85% range, so we anticipate lenders will keep their rates in line with current levels (4.75%-6.00%) and we will continue to see conservative underwriting parameters. Hopefully with new loan budgets and multifamily market fundamentals strong (especially locally) lenders will take a more common-sense approach and execute on a deal-by-deal basis. We also expect to see lenders focus their attention on borrowers with strong track-records and robust balance sheets.
RENT & VACANCY UPDATE:
San Diego Annual Rent Growth had been in the 12%-15% range over the last 2 years bolstered by low vacancy (sub 3%) and a continued deficit of supply. In Q4 2022 signs of rent growth and vacancy rates have subsided closer to 5% while vacancy has ticked-up a bit to 4%. Looking into the future, a recent study from USC Lusk Center for Real Estate forecasts that San Diego Rent Growth will outpace Los Angeles and Orange County over the next two years due to strong market fundamentals regarding future supply and demand. Although recent reports state that San Diego rents dropped at the end of 2022, we see this data consistent with the traditional semi-annual ebbs and flows of rent growth that were consistently present in reports prior to 2020; and therefore we expect rents to grow by 5%-8% in 2023.
San Diego Multifamily Market News Feed:
Updated: January 13, 2023
– 2022’s Most Competitive Rental Markets >> Read More
– Rental Market Tracker, San Diego Rents to Rose 9% >> Read More
– Despite National Slowdown, Rents Rising in SD >> Read More
– People Still Flocking to San Diego >> Read More
– America’s Hottest Rental Markets 2022 >> Read More
– San Diego #4 on Migration Destinations >> Read More
– San Diego Named Pro-housing City by State >> Read More
– San Diego Unemployment Increases Slightly >> Read More
– San Diego Ranked 7th Best Multifamily Market >> Read More
– City Council Updates Mira Mesa Community Plan >> Read More
– San Diego Rents Fell in November >> Read More
– Economic Recession Milder in California >> Read More
– Housing Affordability, Worst on Record >> Read More
– San Diego Mayor Outlines Tenant Protection Plan >> Read More
– What’s Next After Measure B Passed? >> Read More
– Top California Markets of Multifamily >> Read More
– JP Morgan to Buy Built-to-Rent Homes >> Read More
– San Diego Building Dept Overwhelmed >> Read More
– San Diego Climbing Ranks of Most Expensive Cities >> Read More
– California SFR Rental Prices Up 30% >> Read More
– Commercial Real Estate Outlook >> Read More
– When Will San Diego Start Charging for Trash >> Read More
– Shortfall of Short-Term Rental Applications >> Read More
– San Diego Unemployment Up Slightly >> Read More
– Ranking the Most Expensive Zip Codes >> Read More
– ARG’S Latest Multifamily Market Report – 2022 >> Read More
– Del Mar Apartment Complex Proposed >> Read More
– San Diego Apartment Rents to Outpace LA, OC >> Read More
– 600 Units Coming to SDSU Mission Valley Campus >> Read More
– UCSD Purchases East Village Apartments >> Read More
– No Fault Eviction Ban Expires >> Read More
– San Diego Short-term Rental Application Process >> Read More
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>>Download Q3 2022 Market Report file below ->
MARKET UPDATE: THIRD QUARTER 2022 SAN DIEGO COUNTY
AVG RENTS COUNTYWIDE: Studios: $1,612 | 1Bdrm: $1,970 | 2Bdrm: $2,433 | 3Bdrm: $2,842
CURRENT MARKET CONDITIONS:
UNEMPLOYMENT: 3.1% in July, down from 6.4% last year.
RENT: Rents are up 2.3% the last month and 20.8% YoY.
INFLATION: Nationally at 9.1% (midyear 2022), highest level in four decades.
SAN DIEGO COUNTY APARTMENT MARKET PERPSECTIVE: August 2022
The San Diego Apartment Market has been one of the best performing in the country over the last few years. Impressive statistics demonstrate strength such as 20.8% rent growth over the past 12 months (highest among Los Angeles, Inland Empire, and Orange County), and an AVG Price/Unit of $371K (up from $331K last year).
The San Diego economy has also posted strong numbers with unemployment at 3.1% in May and it continues to trend downward with 104,300 jobs added over a 12-month span. In fact, every sector of our economy has experienced YoY job growth except for manufacturing. With talks of recession swirling around in the media daily, it should provide some comfort to know that the San Diego job market is tighter than ever moving forward through the end of the year.
In summary, overarching tailwinds from inflation and rising interest rates are causing a “flight to quality” with strong demand for core locations throughout the county. These macroeconomic challenges will deliver blows to pricing in tertiary multifamily markets, however phenomenal rent growth and extremely low vacancy rates countywide create a strong outlook to the future. San Diego’s transaction volume through April ($731M) is on pace to keep up with last year’s record ($3.7B). In addition, with only 911 apartments added to the market this year and only 8,445 in the pipeline, demand continues to outweigh supply.
Market Data Collected from PwC, Yardi Matrix, CoStar, Bureau of Labor Statistics and the San Diego Union Tribune. Sales Data Statistics are provided via CoStar Comps: 5-50 Units from 1/1/2022 - 6/30/2022. Rent and vacancy data collected from the Southern California Rental Housing Association’s Spring 2022 Survey. This information is for discussion purposes only and we believe to be reliable however, we make no representations or warranties, expressed or implied, as to the accuracy of the information.San Diego Multifamily Market Report 3rd Quarter 2021
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