Apartment Rents in San Diego Rising at a Historic Rate

Apartment Rents in San Diego Rising at a Historic Rate

Fourth Quarter Saw a Seven-Year High for Rent Growth

By Joshua Ohl
CoStar Analytics

January 21, 2022 | 1:57 P.M.

San Diego’s apartment market saw record demand during 2021, when annual net absorption, which measures the change in occupancy over time, eclipsed 10,000 units, more than doubling the five-year average for the market.

Given that the occupancy rate has settled near 98%, net absorption in the San Diego apartment market is expected to moderate this year. But moderation does not portend that demand is cooling off, but rather there just are not enough available units to continue trending at that level.

On the back of that demand, annual rent growth reached an all-time high at the end of 2021, with asking market rents in San Diego growing 13.5% on a year-over-year basis. That was three times higher than the market's five-year average.

It appeared that rents had begun flattening out at the end of 2021 as often happens due to seasonality, October was the first month since April 2020 that rents fell, but that turned out not to be the case.

Fourth quarter rent growth in San Diego averaged less than 0.2% each year between 2015 to 2020. However, the fourth quarter of 2021 posted 0.8% rent growth, the strongest showing during that quarter in seven years. The end of 2014 was the last time rent growth was stronger, when it grew by 1%.

That was in large part driven by the short-term recovery in November and December, when rents grew 1.3%.

Although demand is moderating, rents are still projected to continue rising above the rate of inflation through 2022, particularly with little supply-side pressure this year. Fewer than 3,500 market-rate apartment units are scheduled to deliver this year, and only about 7,500 units are in the pipeline.