San Diego County's apartment market is the strongest in at least 5 1/2 years, largely because of the high cost of single-family homes, according to an Axiometrics monthly report.
Dallas-based Axiometrics calculated that San Diego County renters signing new leases paid an average monthly effective rent of $1,681 in September, $94 more than a year earlier.
This figure is higher than MarketPointe Realty Advisors' $1,515 average rent in September. MarketPointe restricts its surveys to complexes with 25 or more units.
Axiometrics' September increase translates into a 47-basis-point increase from August and a 231 basis-point rise from September 2013.
This in turn translated into an effective average annualized rent growth of 5.3 percent as of this past September, the survey reported.
Axiometrics stated San Diego County ranked No. 17 in effective rent growth among the nation's top 50 apartment markets and was the second-strongest in Southern California, behind the smaller Oxnard-Thousand-Oaks-Ventura Metro area, which recorded 6.4 percent in effective annualized rent growth in September.
Effective annualized rent growth has been 4 percent or higher in 10 of the past 11 months and has increased each of the past three months, the survey reported.
"Before this latest streak, July 2011 was the only time since at least 2009 when the San Diego market experienced 4 percent growth," the report continued.
Axiometrics reported the year-to-date effective rent growth in 2014 is the second strongest of the post-Great Recession period.
San Diego-area rents have increased by 5.4 percent in the first nine months of the year from the like period in 2013, behind only 5.7 percent for the like period in 2012.
“Effective rent growth in most markets reached a peak in mid-2011 that has yet to be surpassed,” said Stephanie McCleskey, Axiometrics’ vice president of research. “San Diego is one of the very few metros that has surpassed those heights. San Diego’s [annualized] rent growth was 4 percent in July 2011, its highest post-recession point until November 2013, when it reached 4.2 percent."
“Year-to-date rent growth that year fell significantly in November and December and decreases are typical during the fourth quarter, according to Axiometrics’ historical data,” McCleskey added. "Still, continued strong performance could find 2014 emerging as San Diego’s best year of the recovery.”
Axiometrics said that apartment demand increased as single-family homes became more expensive, even as average family income has decreased over the past few years.
Whereas families in the San Diego area earned an average of $75,900 in 2002, the average was $72,700 in 2014's first quarter.
The average home price in the metro area, meanwhile, had increased from $390,000 in 2012's fourth quarter to $504,200 in by second quarter of 2014.
The apartment vacancy in the San Diego region stood at 3.9 percent in September, a slight increase from the 3.7 percent of both August 2014 and September 2013.
MarketPointe pegged the average apartment vacancy at 3.59 percent based on its differing approach.
Job growth also has contributed to increased apartment demand. Employers added 34,200 jobs in the metropolitan area during the 12 months ended August 2014 -- a 2.6 percent increase.
“Job growth is lower in San Diego than in many other strong apartment markets, but is high enough to keep demand exceeding supply, at least for now,” McCleskey said. “With the newly employed ready to create new renter households and the high cost of single-family homes keeping people in their apartments longer, San Diego has become a landlord’s market.”
The apartment demand is resulting in a moderate flurry of new construction in the San Diego metro area. Some 3,535 units came on the market between the start of 2013 and the end of the third quarter of 2014.
Axiometrics has identified another 2,801 units to be delivered from now through the end of 2015 and, so far, 418 more in 2016.
“That’s unlikely to be the end of it,” McCleskey said. “Agencies in the San Diego area approved building permits for 5,301 units in the 12 months ended August 2014. Those that are built will likely be delivered in late 2015 or 2016.”
Casa Mira View in Mira Mesa will eventually include 2,200 units. The downtown San Diego submarket will have 1,475 new units through 2016, The Clairemont/Linda Vista Mission submarket will have 1,089 new units during the same time period.
Similar to other urban core submarkets nationwide, downtown San Diego apartment owners charged the highest rents in the metro -- an average of $2,120 in September.
The least expensive apartments, with an average rent of $1,253 per month, are found in the East San Diego County market of El Cajon/Santee/Lakeside.