San Diego’s apartment market is booming in 2021

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By Joshua Ohl

CoStar Analytics

June 29, 2021 | 8:15 AM

San Diego’s apartment market is booming in 2021. Demand has reached a record high as quarterly absorption, which measures the change in occupancy over time, has doubled the long-term average for the region.

The overall vacancy rate has fallen below 4%, while the stabilized rate has fallen to an all-time low below 3%. Landlords have remarked that they haven’t witnessed this level of demand in the past 20 years as many apartment operators are 100% occupied.

Rent growth has responded, and almost everywhere across the region, it has accelerated above the long-term average from Downtown to University Town Center.

The County Board of Supervisors installed a rent cap and extended the eviction moratorium into August, which theoretically caps rent increases at 4.1% over the summer on renewals, far below the current rate of growth for asking rents.

New supply is being absorbed at a strong clip, with more than 15% of new inventory that delivered in the second quarter already occupied.

Investors are also returning to the market, and sales activity has resumed at pre-pandemic levels, but one deal will soon close that will shatter sales records in the county. The Prebys Foundation is selling a portfolio that includes 66 local apartment communities and more than 5,800 apartment units to Blackstone for more than $1 billion.

Downtown San Diego Is Still Trying to Capture Lost Demand Amid the Pandemic

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.

San Diego Council Approves Incentive Plan Geared to Boosting Affordable Housing

Developers Support Exemptions, Say Opt-In Threshold May Be Too High to Attract Projects

San Diego is looking to deal with what one organization estimates is a 140,000-unit regional deficit of affordable housing. (Getty Images)

By Lou Hirsh
CoStar News

November 10, 2020 | 7:04 AM

San Diego City Council has approved a plan intended to increase the stock of affordable housing by exempting developers from certain fees and zoning requirements, as the nation’s eighth-most populous city tackles a serious statewide shortage of workforce-accessible residences.

The council voted 8-1 Monday to approve a “Complete Communities” plan put forward this year by Mayor Kevin Faulconer, exempting developers from some impact fees, height, density and other zoning requirements, provided they set aside 40% of units in a residential project as affordable under regional household income guidelines.

“It’s really addressing a crisis that we’ve been dealing with, which is not having enough housing that is affordable and accessible to our residents, while also addressing the climate crisis,” Council President Georgette Gomez said during Monday’s meeting.

The opt-in plan is designed to boost the city’s production of affordable units and meet regional housing-allocation requirements established in prior state legislation.

The San Diego program also establishes an “in lieu” fee to be paid by developers in certain parts of the city in cases where they don’t designate at least 15% of units as affordable, with the money to go toward programs intended to make neighborhoods more public transit, pedestrian and bicycle friendly.

The in-lieu fee is intended to help the city follow through on its regional climate action plans, in line with previously established state standards for reducing greenhouse gas emissions. Other parts of “Complete Communities” are focused on getting parks and other civic amenities into communities where new housing is being added.

The affordable unit threshold was originally proposed by the mayor’s office last year at 20%, but city staff members told City Council that the number was revised after some community planning groups expressed concerns that number would let in too many high-density projects and create congestion and other problems.

“Even though it’s an opt-in program, still it’s creating a different narrative in how we are going to challenge ourselves as [elected officials] to really do things differently and try to create these tools that will address these challenges we are facing,” Gomez said.

During the video-streamed meeting, several regional developers, architects and building industry groups called in with mixed reviews.

Craig Benedetto, spokesman for the San Diego chapter of commercial real estate trade organization NAIOP, formerly known as National Association of Industrial and Office Properties, said his group is " supportive of the concept of incentives, waivers and process reforms to stimulate housing production."

“We do have concerns about the opt-in requirement of 40% for inclusionary housing,” Benedetto told council members. “We believe that is extraordinarily high and we would encourage the staff to look back in the year ahead to make sure the program is operating as intended.”

Monday’s approval was opposed by Councilwoman Vivian Moreno, who said consideration of the incentive plan should be held off until the new year, when a new mayor and city council are sworn in. Faulconer and several council members are termed out at the end of this year.

Current state Assemblyman and former city Councilman Todd Gloria, who won last week’s San Diego mayoral election against Councilwoman Barbara Bry based on preliminary voting results, has said he generally supports the “Complete Communities” plan, though some incentive components, including those related to height restrictions, may need to be tweaked later.

Council approval came after a proposed $900 million city housing bond, intended to finance construction of at least 7,500 affordable housing units through an increase in property taxes, appears to have failed to obtain the required two-thirds approval from San Diego voters in last week’s elections.

As of midday Monday, with 64,000 mail and absentee ballots still to counted, the housing bond had garnered a 57.2% share of yes votes.

According to the San Diego Housing Federation, which was part of a coalition that backed the housing bond measure, the region faces a deficit of 140,000 housing units that are affordable to working families, due largely to severe imbalance of supply and demand over the past 20 years.