San Diego Multifamily Rents Surge 5%

San Diego is experiencing rapid rent growth. Apartment rents in the market grew 4.9% in the month of July, according to a report from Yardi. The national average rent growth was 2.8% year-over-year for the same month. While July is typically a growth month for apartment rents, this year, rental rate growth has been consistently strong in San Diego.

“Strong demand for apartments is feeding off of limited supply and rapidly rising prices of single-family homes, a growing job market and the area’s relative affordability compared to other major cities in California,” Nadia Balint, our real estate writer and researcher at Yardi, tells GlobeSt.com. “A low to moderate amount of new construction—around 4,000 rental units are projected to be completed in 2018 in San Diego metro—is also driving rent growth in the area. Rents in San Diego are rising by 4.9% year over year, outperforming the national average of 2.8%.”

Rent growth was strongest for studio and one-bedroom apartments at 5.1% and 5.2%, respectively. Two-bedroom rent growth was 4.8% year-over-year, bringing the average to 4.9% for the month of July. Month-over-month, rents were relatively flat, falling 0.2%. “San Diego is one of the country’s most stable markets. The average rent was $2,144 in July, and is expected to continue rising at a rate of 3.5% to 4% in the second part of the year, factoring in seasonal slowdowns into the fall and winter seasons,” says Balint. “Barring extraordinary circumstances, demand for rental housing remains strong across the board thanks to continued job growth and a well-diversified local economy.”

As a result of the strong rent growth, apartment construction has increased. San Diego has 7,700 units in the construction pipeline, but some projects are delayed due to rising construction costs and labor shortages. In the meantime, while the market waits for more supply, there are rising affordability concerns. “Affordability concerns are causing rents in lower-priced apartments to advance faster than those in higher-end apartments,” says Balint. “However, with home-for-sale prices rising even faster than rents, the demand for rental housing translates into high overall occupancy levels in the San Diego market, which is above 96%.”

San Diego is one of the top markets in California for apartment rent growth, alongside Los Angeles. However, both markets are behind the Bay Area in terms of average monthly rental rates. “While rents in San Francisco and San Jose have started cooling over the last 2 years, advancing at an annual rate of 2.8% and 3.8%, respectively, growth in Southern California’s San Diego and Los Angeles is strong and steady by 4.9% and 4.6%, respectively, year over year,” explains Balint. “Apartment rents in San Diego, at $2,144, and Los Angeles, at $2,389, sit well below what renters pay in San Francisco, at $3,577, and San Jose at $2,760. “Much of the price difference is dictated by the strength of the job market in and around the Bay Area, consisting in large part of highly paid tech jobs. By these standards, renting in the San Diego is more affordable than in the other major California hubs.”