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San Diego apartment market poised for rent growth

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John Vorsheck

Employment growth and a steady flow of people moving to San Diego continues into 2015 as leading industries add more jobs. This year, 37,000 new jobs are expected in the metro, and for the sixth year in a row, tourism will rise. Biotech firms and the military will also contribute to the area’s job growth. In South San Diego, the ongoing expansion of the San Ysidro border crossing is expected to support day trips from Mexico, creating a number of new positions near the border.

The wave of apartment supply across the US coming available will circumvent most of San Diego County, limiting the new inventory this year to a handful of submarkets in the metro. However, downtown is facing a challenge over the next couple of years as thousands of units are underway and planned, keeping apartment operations unsteady. Overall, most areas in the county will maintain vacancy in the 3 percent range and record positive rent gains. Investors will likely remain focused primarily on neighborhoods like North Park, South Park, University Heights and Hillcrest. It is expected that 2,700 rentals in the metro will be completed, which is a 1 percent rise in stock over the prior year; in 2014, 4,900 units came online. Supply and demand will mirror each other this year, leaving vacancies at 3.2 percent.

Pricing and due diligence will take on a greater role when multifamily properties are being considered for acquisition. The rise in value in rents in 2014 will encourage buyers to look for properties that have below-market rates in 2015. Meanwhile, sellers have an opportunity to capture higher prices by listing assets at pro forma cap rates as financing remains readily available. Investors who are targeting properties with market rents in place will likely take a more conservative stance when analyzing five-year rent projections as they consider a purchase, which should result in other forms of value-add opportunities. Repositioning or adding units, for example, will remain prevalent in the metro.

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About Marcus & Millichap, San Diego:

The San Diego office of Marcus & Millichap provides real estate investment clients with the opportunity to buy and sell all types of commercial property, including apartments, retail, office, single-tenant net-lease, industrial, healthcare, self-storage, seniors housing, hospitality, land, manufactured homes and special assets. The San Diego agents represent commercial real estate investors throughout the San Diego MSA, California and surrounding states. Investment professionals also leverage Marcus & Millichap’s industry-leading research to offer investment real estate advisory services on individual properties and portfolios. Commercial real estate financing services are offered by a loan originator with Marcus & Millichap Capital Corporation (MMCC).

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