Downtown San Diego Is Still Trying to Capture Lost Demand Amid the Pandemic
Renter Preferences Are Shifting Outside the City
Demand has increased for areas outside of Downtown San Diego. (CoStar)
By Joshua Ohl
CoStar Analytics
November 20, 2020 | 2:17 P.M.
At this point, it’s no secret that demand patterns among apartment renters in San Diego have shifted amid the pandemic. Renters are increasingly turning to suburban locations where they can spread out in larger and more affordable units. The average one-bedroom apartment in the suburbs rents at a $700-per-month discount compared to downtown San Diego.
We’ve also seen that the stabilized vacancy rate downtown has risen by more than 300 basis points this year. Stabilized apartment buildings are ones that are no longer in lease-up, have achieved 90% occupancy or were completed more than 18 months ago. The stabilized vacancy rate downtown now sits at nearly 10%, easily the highest in the region. The overall vacancy rate, which includes recently completed apartment buildings that are still in lease-up, has climbed to 14%. Both are expected to continue to rise in the near term of the forecast.
At the height of the shutdown orders in the spring, net absorption, or the number of apartments moved into versus those moved out of, in downtown fell by more than 260 units. For comparison, the rest of the San Diego region recorded positive net absorption of more than 220 units.
After the economy began reopening, demand picked up in downtown, and renters started moving into some of the newest buildings in lease-up. For instance, the Merian opened during the third quarter and saw an average of roughly 30 units lease per month during the summer.
From June through October, more than 850 units were absorbed downtown. But that came at the expense of stabilized buildings, as many renters chased concessions of up to two months free in the newest properties. That was about 200 more units of demand than downtown has typically recorded over the same stretch in the prior three years.
But even with a stronger stretch of absorption since June, downtown’s demand was roughly 450 units fewer than similar March through October stretches since 2017.
It was a different story at the market level. When we remove downtown’s inventory from the data, demand was positive during the shutdown between March and May, and the region recorded more than 220 units of absorption. While that was about 400 units less than we historically see here, the region more than made up for that difference starting in June.
Between June and October, the region, minus downtown, absorbed 1,250 units, or almost 800 more than the same time period between 2017 and 2019. And since the outbreak of the coronavirus, those areas outside of downtown have absorbed 400 units more than the historical average between the months of March and October.