San Diego Fifth Most Expensive Multifamily Market in US

San Diego is officially one of the most expensive multifamily markets in the US, according to new research from AppFolio and ALN. The market has seen increasing apartment rental rates over the last several years, and has broken into the list of the top five most expensive in the country at number five. San Diego’s average rental rate is $1,871 or $2.17 per square foot. The list now has three California cities with Los Angeles at number four and San Francisco ranking number one.

“In the past, San Diego has been close but hasn’t ever broken the top five. It wasn’t a surprise, but there has been a shift in jobs,” Nat Kunes VP of product management at AppFolio, tells GloebSt.com. “There has been a lot of job growth in the tech industry in areas like San Diego, and that has been driving a lot of the rent growth. That had happened in Sacramento, and we are seeing a similar pattern in San Diego. There are more start-ups in the area, and that is taking talent from Los Angeles or the Bay Area. That is driving some of the change in rental demand. In addition, some of the new development going on there has been driving up the overall rent growth in the city to make it a top-five rental location.”

Job growth has been a major driver of this rent growth. In the last few years, San Diego has seen a surge of tech jobs. In some ways, it is following a similar pattern as Sacramento, which has also seen substantial rent growth in recent years. Kunes says that this is a typical growth pattern in US cities. “A lot of the growth is driven off of jobs—and that is the number one driver of rent growth in most cities,” explains Kunes. “When a city experience job loss, people move away. When a city experiences job growth, people move in. You see that trend follow in most cities in the US. You see that closely coupled with construction so that people have homes to move into. You also need the right type of supply, whether it is for young families or young professionals.”

With this growth of jobs has come luxury apartment construction for the employees of these high-paying jobs. “The city can support higher rent prices. That in-turn signals to developers that the market needs more luxury apartments,” says Kunes. “Now, there is a long lead time on that. It could be upwards of two plus years before you complete that construction. San Diego can support new construction, so I think that we will continue to see new construction there. The market is not nearing a cap.”

Kunes expects San Diego rents to continue to grow at this pace for the foreseeable future. “I think that rents will continue to growth pretty rapidly, but I don’t think that it will overtake any of the cities around it for most expensive rent,” he says. “It is a significant jump from San Diego to L.A. I think the rent growth rate will maintain a healthy pace for the next 18 months to two years.”