The San Diego multifamily market has healthy, declining vacancy trends and strong rental pricing, which in return have resulted in solid ongoing investor interest and activity, according to Cushman & Wakefield.
The report indicated countywide multifamily vacancy dropped to just 3.72 percent in September, down from 4.08 percent six months ago. Meanwhile, investment sales volume for properties $5 million and greater surpassed the $1 billion mark by the end third quarter 2018.
“Nearly 90 percent of the more than $1 billion in multifamily sales year-to-date 2018 occurred in just the second and third quarters,” said Jolanta Campion, Cushman & Wakefield’s research director in San Diego. “For the last three consecutive years, total transaction activity has remained above the 16-year long-term annual average of $1.6 billion. And while it would require a robust fourth quarter to reach that mark here in 2018, it is still possible.”
The report highlights that private high-net-worth investors have been the leading buyers of multifamily assets in 2018, comprising approximately two-thirds of the buyer pool, similar to the overall buyer composition for the United States, per data from Real Capital Analytics.
“Private high-net-worth investors have acquired more multifamily properties than any other group for the last five consecutive years in San Diego, and by a distant margin in the last few, having comprised over half of the volume each year beginning in 2015,” said Ray Adams, managing director with Cushman & Wakefield’s multifamily group in San Diego. “We would expect these private buyers will continue to lead the field for the foreseeable future.”
Five of San Diego’s six multifamily submarkets tracked by the report had vacancies below 5 percent; a sub 5 percent vacancy is considered a landlord’s market. Evaluating vacancy by submarket, the Highway 78 Corridor posted a market low of just 2.46 percent, followed closely by South County at 2.56 percent, Interstate 15 Corridor at 2.7 percent, East County at 2.81 percent, and then North County Coastal at 4.21 percent. San Diego Central, which with 37,410 units reflects the largest multifamily submarket with essentially double the number of apartment units of most other submarkets, also reported the highest vacancy of 5.77 percent, although still considered stable and healthy.
In conjunction with the tight vacancy, the countywide multifamily average rental rate for all of San Diego was $1,960 per month, 5.7 percent higher than a year ago and 12.4 percent higher than two years ago.
“San Diego remains a superior location for those seeking a desirable coastal workplace, largely due to its ideal year-round weather and an abundance of outdoor activities and entertainment destinations that make it a really enjoyable environment, which of course comes at a price,” said Campion.
She added, “Like many growth markets across the country, housing affordability is also becoming a deeper concern for San Diego, especially among millennials who make up almost a quarter of our regional population and who play a critical role in fueling future job and economic growth. However, San Diego is still a more affordable place to rent — or buy a home — when compared to other major gateway markets, including San Francisco where the median home price is approximately three times greater than San Diego.”
Adams concluded, “Yet in San Diego, only 23 percent of households can still actually afford to purchase the median-priced home compared to 26 percent in California and 53 percent nationwide as of mid-2018, according to C.A.R. In turn, this is leading to greater rental demand in our market, where job growth across multiple industries remains robust.”
