Multifamily transaction activity has increased in San Diego during the fourth quarter, due partly to the typical end-of-year rush to close escrow, as well as uncertainty about tax reform in 2013. Agency debt is still a large driver, but relationship banking is picking up for well-heeled borrowers, and investors increasingly have multiple options. The multifamily rental market continues to benefit from the high down payment and credit requirements placed on average home buyers who still choose to rent in San Diego where the cost to rent is still below the cost to own.
San Diego’s diverse economic base added 30,300 jobs over the past 12 months, and year-over-year employment gains in excess of 2 percent were reported in nearly all sectors. San Diego has seen a rise in tourism, which has positively impacted the service industries. While manufacturing has struggled to gain footing, growth within construction and finance has emerged.
- Unemployment has decreased 1.3 percent since August 2011 and is currently 1.4 percent below state levels.
- Home prices have increased about 5.2 percent in 2012 but remain 37.5 percent below the 2006 peak levels, with a median-priced home at $350,000 today.
- San Diego’s population has increased 5.1 percent since 2008. Projections call for 1.2 percent annual growth through 2015. San Diego remains a supply-constrained market with relatively tight vacancy as the area averages less than 1,000 delivered units annually over the past several years. The metro’s vacancy rate is 5.4 percent countywide, which has been the average since mid-2009, while the coastal and core markets often perform under 3 percent. Apartment demand has remained strong, with pipeline deliveries anticipated to be easily absorbed.
- San Diego’s year-over-year rent growth is 1.5 percent, but is expected to pick up. Countywide rent growth is expected to be 2.8 percent in 2013 and 4 percent in 2014, with coastal submarkets outperforming others. Growth has averaged 70 basis points a quarter since mid-2010.
- Year-to-date, permits for 4,042 units have been filed with many deliveries expected in 2013 and 2014. Of note, the 1848-unit Casa Mira View is coming on line in phases throughout 2013. Demand is forecast to outpace new supply over the next several years.
- Sales volume has increased 34 percent on average each year since 2009.
- Year-to-date (August 2012), sales volume totals $492 million, 42 percent higher than the same period in 2011. San Diego saw just one Class-A sale in the past 21 months, with three currently on the market.
- 26 transactions were completed, compared to 20 during the same period in 2011, and 11 in 2010.
- The City of San Diego has seen the highest total dollar volume year-to-date, followed by El Cajon, La Mesa and Vista.
- Cap rates have continued to compress, dropping 1 percent since 2009 to between 4 and 4.75 percent for Class A; 4.5 and 5.5 percent for Class B; and 5.5 percent for Class C.
- San Diego’s high barriers to entry, desirable location and diverse job base will amplify its economic recovery, bringing the market back to the national spotlight, from a population growth and multifamily investor demand standpoint, over the next 36 months.
- A population growth of 3.7 percent is expected through 2015.
- Job growth is expected to outpace most California metros over the next three years, averaging 1.9 percent annually, which would reduce unemployment to 7.7 percent by 2016.
— Darcy Miramontes, executive vice president, Jones Lang LaSalle