Darcy Miramontes
The San Diego multifamily market is undersupplied, but development constraints have inhibited new supply from coming to the market. According to the San Diego multifamily market report from JLL, the market is producing “insufficient levels of new housing to meet market demand.” Rising demand from population growth and inward migration is exacerbating the apartment supply problems in the market.
“San Diego is perennially undersupplied for multifamily,” Darcy Miramontes, EVP at JLL, tells GlobeSt.com. “We have organic population growth and in migration that occurs within San Diego County, and we have not been building enough housing units in either single-family or multifamily markets. While there are certainly some areas in San Diego with a micro-supply where there are some short-term supply concerns, generally San Diego is undersupplied.”
The rising demand and rent growth—average rents are now at $1.975 in the market—warrant new construction, but there are significant challenges to bringing new supply to the market. “There are a lot of obstacles to development in San Diego. We are geographically constrained by Camp Pendleton to the North, Mexico to the South and the mountains to the East,” says Miramontes. “There isn't the supply of developable land that you see in a market like Houston or Phoenix. Because of that there is limited available land in the metro and a lot of development is redevelopment.”
A dearth of available land, land prices and construction costs, which Miramontes says are up 16%, are development challenges throughout Southern California. There are local challenges as well. “There is always the obstacle of getting municipality approval,” she says. “Getting development approval is a very lengthy process in San Diego, and it prevents development. The difficulty in processing development continues to be an issue.”
Despite the challenges, some markets are seeing new construction activity. According to the report, there are 4,292 units under construction. Downtown San Diego and Mission Valley are seeing the majority of that new supply. “It is really only a short-term supply. It starts to drop-off in 2020, and thereafter it drops off even more,” says Miramontes. “Those are short-term supply issues that overtime will dissipate.”
With limited supply coming online, rents will continue to climb upward; however, they will maintain San Diego's long-term average of 3% growth. “San Diego's rent growth has always been between 3% and 5% on average,” adds Miramontes. “There have certainly been some markets that have outpaced that in recent years with 6% or 7% rent growth, but that is not the normal. I foresee San Diego rents maintaining that long-term average of 3% rent growth. San Diego is very steady, and there are not really big dips in occupancy or rental rates compared to other major markets up and down the West Coast.”
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Kelsi Maree Borland
