By Guy Enriquez, Vice President, NAI Capital
The market for small- to medium-sized multifamily buildings ranging from 10 to 100 units in the City of San Bernardino has experienced a severe downturn in sales transactions recently. This was caused by the rapid increase in interest rates and a disconnect between buyers and sellers on pricing expectations.
Guy Enriquez, Vice President, NAI Capital
Cap rates on sales completed in the third quarter of 2022 show an increase of about 80 basis points year over year to 5.5 percent in the Inland Empire. Third-quarter 2022 sales volume in the Inland Empire fell to 15 transactions totaling $54 million. The area has been averaging 37 transactions totaling $180 million on a quarterly basis over the past four quarters. This quarter, the City of San Bernardino saw one sales transaction in this segment of the market, indicating the lack of deal volume.
While rising interest rates caused a collapse of sales volume, combined with other general economic factors, San Bernardino’s rental market has remained very strong. The city’s overall multifamily physical vacancy rate has stood at 3.2 percent throughout 2022. The average rent for a one-bedroom unit increased from $949 to $966 per unit during the first three quarters of the year. This represents an increase of 1.8 precent since the start of the year. The average rent for a two-bedroom unit increased 1.4 percent to $1,213 over the same timeframe.
While the City of San Bernardino continues to have one of the lowest multifamily rental rates in Southern California, significant new multifamily development has eluded the city. There are currently only 72 units under construction in San Bernardino. This is a very small of portion of the 5,000 units under construction in the Inland Empire.
The City of San Bernardino continues its efforts to redevelop the Carousel Mall into a residential mixed-use property. However, the city recently experienced a setback when Lincoln Properties withdrew as the primary developer during the negotiation and planning phases for the proposed redevelopment. It cited changing economic conditions (among other changing conditions) as the reason for the company’s withdrawal. Through fires, looting and squatting, the 1-million-square-foot regional mall has sat vacant for five years.
While Carousel Mall has proven a challenge for the city, the County of San Bernardino recently announced it will build a new 300,000-square-foot county government center in downtown San Bernardino, replacing existing and aging county offices. San Bernardino International Airport continues to expand beyond serving as a logistical hub, extending passenger flights from San Bernardino to San Francisco, Provo, Utah, and a planned expansion of service to Las Vegas in early 2023.
Metrolink’s Arrow Service is also scheduled to begin in late October 2022. The new Metrolink line will connect downtown San Bernardino to downtown Redlands and the University of Redlands, as well as offer east valley Inland Empire residents transportation to Downtown Los Angeles and other Metrolink locations. The progress of downtown San Bernardino as a transportation hub will attract people to live, work and play in the region.