New developments popping up throughout San Diego County.

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New multifamily developments are springing up throughout San Diego County. Strengthening apartment market fundamentals and rising demand are among the many reasons why investors view this as the perfect time to capitalize on development. There are currently more than 1,500 multifamily units under construction and slated for completion by the end of this year in the county — more than triple the amount of new units delivered in 2011, according to RealFacts. Developers are finding a more cost-effective approach to investing in this market by purchasing land for development as opposed to buying existing apartments and refurbishing. However, finding suitable land for development remains a challenge.

Locations throughout the county attracting the highest developer interest and already witnessing new construction activity are centrally located, mixed-use urban areas. This is no surprise as walkability and easy access to transportation is highly sought after by the younger generation of renters. This population is currently estimated to be more than 959,000 strong — larger than that of the Baby Boomer population, according to SANDAG.

A number of projects have broken ground in the Downtown market, primarily in Little Italy and East Village, as developers take advantage of the area’s unique characteristics. Two notable apartment complexes currently underway include the 201-unit Broadstone project by Alliance Realty Partners at the intersection of Grape and California Street and the 224-unit Ariel Suites project by Leo Frey at Kettner Boulevard and Beech Street.

Development outside the Downtown area is evident as well. The 379-unit luxury apartment complex by Woods Partners is nearing completion within the San Diego Spectrum master-plan in Kearny Mesa. Just north of Spectrum is the construction of the 1,800-unit Casa Mira View complex by Garden Communities of California at Mira Mesa Boulevard and Interstate 15. Although more apartments are set to come to fruition throughout this year, these developments are not presumed to have much of an impact on occupancy rates.

According to MarketPointe Realty Advisors, the countywide vacancy rate dropped 64 basis points to 4.43 percent in March 2012. This is compared to the 5.07 percent that was reported in March 2011. Additionally, the San Diego County rental rate increased 2.56 percent from $1,327 per month ($1.52 per square foot) to $1,361 ($1.57 per square foot) during the same period. North County coastal areas like La Jolla, Del Mar and Encinitas continue to demand the highest rents, averaging $1,698 per month, or $1.79 per square foot. Of the coastal communities, the La Jolla and UTC submarkets are anticipated to outpace the rest of the county in rent increases over the next two years. On the higher end of the price scale, coming in at second is Central County at $1,460 per month, or $1.75 per square foot, with Downtown commanding $1,710, or $2.09 per square foot, which is a slight premium over the North County coastal submarkets. This strengthening of the rental market can be largely attributed to the growing number of people shifting their views of renting versus owning. Many are weary of investing in homes and fearful of losing equity due to the weakening housing market.

Vacancy and rents aren’t the only positive market fundamentals.San Diego experienced a spike in sales activity last year with notable increases in both pricing and volume. Total sales volume in 2011 exceeded $915 million, up 35 percent compared to $234 million sold in 2010, according to Real Capital Analytics. Private investors and public REITs were among the most active buyers of multifamily properties. AvalonBay Communities, Equity Residential and R&V Management Corp. accounted for about 69 percent of the properties traded during 2011.

With improving market fundamentals and increased demand, the window of opportunity for rental incentives has closed. Landlords can now command higher rates and no longer need to offer concessions as occupancy rates remain high and vacancy rates low. Overall, current conditions continue to favor apartment owners, a trend that is expected to continue.

— Jolanta Campion, director of research, Cassidy Turley San Diego

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