Q3 2022 Multifamily Real Estate Report: San Diego, CA
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With San Diego’s strong demand for suburban rentals and low vacancy rate, the San Diego multifamily real estate market is one of the strongest in the nation.
Rental growth has been strong in the past year, with over 5,000 apartments absorbed outside of the Central Business District. Vacancy rates are low at between 1-2% across all 12 submarkets.
San Diego employers have fueled a surge in employment, adding more than 31,000 jobs and dropping unemployment to 3.4% during the first half of 2022.
General Area Overview & Demographics
San Diego, California, is a major city in the San Diego-Tijuana metropolitan area. The San Diego metropolitan area is home to more than 3 million people, making San Diego the second-largest city in California and the eighth-largest in the United States.
The San Diego metropolitan area has grown rapidly since its founding.
San Diego’s demographics are varied and diverse. The most common racial group is White (45%), followed by Hispanic or Latino (31%), Asian (14%), Black or African American (7%), and Other races (3%). San Diego also has one of the highest percentages of foreign-born residents of any major US city; approximately 32% of San Diegans are immigrants from other countries.
Additionally, San Diegans are well educated; half have at least a bachelor’s degree compared to only 24% nationwide. The median household income in San Diego is $80,074 per year, which is significantly higher than the national median income of $57,652 per year.
San Diegans enjoy living in an environment that offers great weather year-round and numerous outdoor recreational activities, including surfing and swimming at famous beaches like Mission Beach; camping at Anza Borrego Desert State Park; skiing or snowboarding at nearby Big Bear Mountain Resort; hiking through Torrey Pines State Natural Reserve; or simply enjoying beautiful sunsets at Coronado Island Beach Park.
Summary of San Diego Multifamily Real Estate Performance in Q3 2022
As asking rents increased and vacancy fell for the fourth quarter in a row, conditions for multifamily real estate in San Diego are positive.
In submarkets north of Balboa Park, such as North Park and University Heights, there are now over 820 units under construction.
With cap rates lower than the multifamily loan rates, averaging approximately 3.4% this quarter, there was a notable decline in transactions.
In Q3 of 2022, the overall median sales price sits at a little over $355,000 per unit, while Class A and Class B properties are around $415,000.
What are multifamily rents like in San Diego?
This quarter, rents have risen to $2,280 per month for San Diego multifamily properties, a 1% increase from Q2. Areas like Downtown San Diego are seeing rents as high as $3,100 per month, burdening Americans in the region.
Class B and C units are up as well, closing in on $1,900 per month.
Overall rents are expected to hit close to $2,290 per month by the end of Q4.
Purchase & Leasing Activity
With the number of deals that closed this quarter declining over 60% from Q2, sales activity has slowed in recent months for multifamily real estate in San Diego.
This has brought transaction volume down 20% when compared to last year.
That said, the median sales price is up 10% from last year, now sitting at about $355,000 per unit.
Notable Multifamily Real Estate Deals in San Diego in Q3 2022
Several notable deals for San Diego multifamily properties took place this quarter.
- The Madison sold 110 units for $34 million;
- Park East Apartments sold 56 units for $23.5 million;
- Nook East sold 91 units for $20.1 million; and
- Villa Patricia sold 53 units for $14.9 million.
These provide select examples, among other deals, for multifamily real estate in San Diego.
New Multifamily Real Estate Development Activity in San Diego in Q3 2022
Over 1,700 units were completed this quarter. This has brought over 2,800 units to San Diego’s multifamily market so far this year.
With only currently 4,400 units under construction, overall production is down 5%
About 400 additional units are expected to be completed this year, bringing total annual completions to roughly 3,200 units.
Market Forecast for San Diego’s Multifamily Real Estate Market
San Diego’s multifamily sector is projected to remain stable, despite economic turbulence nationwide.
Rents will be pushed higher by continued renter demand for units and a vacancy rate that has tightened to new lows in recent quarters.
Renter demand and a historically low vacancy rate will continue driving up rental costs, and construction of new units is projected to outpace deliveries.
Apartment vacancy is likely to increase slightly in Q4 and is on pace to end 2022 at one of the lowest in recent years.
Takeaways for Multifamily Real Estate Investors
San Diego’s multifamily market is expected to stay the course in coming quarters. While fewer deals are anticipated compared to last year, investor interest will remain steady due to the excellent operational performance of area assets.
Investors with a preference for higher-grade assets will look toward city centers, while suburban areas often will be made up of mostly Class C transactions.
Regardless of the positive indicators seen, research and due diligence are always required for each to make the best decision for their situation.
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