Demand for Apartments Grows in San Diego
The San Diego multi-housing market is poised for significant growth in 2015. The third quarter of last year recorded 4.5 percent annual rent growth countywide, the highest rent growth numbers seen in more than a decade, according to CBRE Econometric Advisors (CBRE EA). Vacancy, meanthile, remained at 2.7 percent, the lowest level seen since 2007. Countywide average rents are at $1,548, an 8 percent premium over the 2008 peak levels.
CBRE EA found that UTC/La Jolla remains the top rental market in the county, with overall rents averaging $1,958. UTC also witnessed the second-highest rent growth in the county last year, at 7.3 percent. UTC/La Jolla solidifies its position as the county’s top rental market due to strong resident demographics, planned infrastructure improvements and the trolley addition, Westfield’s expansion, and the presence of several major employers, as well as the University of San Diego and the biotech cluster of Torrey Pines.
Downtown has emerged as San Diego’s hottest development market, with Class A projects now commanding rents of $2,652, or $2.98 per square foot. There were 929 units in four projects added last year, bringing the total inventory in Downtown to 4,840 units in 23 buildings (100-plus+ units, market-rate only). Although Downtown San Diego has a healthy development pipeline with four projects under construction and 20 additional more in the planning stages, there remains significant demand for new product.
Millennials now make up more than 30 percent of the Downtown demographic. This 25- to 34-year-old group is twice as concentrated in the Downtown area as compared to Greater San Diego. Millennials continue to seek lifestyle-type product that caters to the 24/7 live-work-play culture they desire.
Developers are also moving to the boutique hotel concept, as opposed to a traditional apartment complex. New complexes are amenity rich and feature top-of-the-line interior design. Rental units are becoming smaller as they are tailored to the average Downtown household size of only 1.55. The majority of for-rent development is happening Downtown, and we foresee a shift to include condominium complexes in the near future.
About 75 percent of Downtown’s residents are renters, a much higher percentage than anywhere else in the county. With an additional 3,600-plus+ new residents anticipated over the next four years, absorption should remain strong.
Accelerated rent growth countywide has set the stage for new development, according to CBRE EA, with more than 60 projects totaling more than 16,900 units currently in the countywide pipeline. The top five most active developers are Garden Communities, R&V Management, Fairfield Residential, Trammell Crow Company and Alliance Residential.
San Diego’s multifamily rental supply has historically lagged in demand, and today is no exception. CBRE EA forecasts countrywide rents to grow an additional 3.6 percent, to $1,616 in 2015. Vacancy is projected to remain low at 3.7 percent. The rental market is ripe and ready for the 3,700 units anticipated to come online next year.
By Rachel Parsons, Senior Associate, Investment Properties, Multifamily CBRE | Capital Markets. This article originally appeared in the February 2015 issue of Western Real Estate Business magazine.