Luxury Communities Are Driving the Surge
By Joshua Ohl CoStar Analytics July 13, 2021 | 1:17 P.M.
Rent growth across the San Diego apartment market is soaring in 2021. On the back of unprecedented demand, landlords have achieved nearly unparalleled pricing power as the stabilized vacancy rate, which tracks all properties that are older than 18 months or have reached 90% occupancy following delivery, fell to 2.2% at the midway point of this year.
Local landlords are reporting 100% occupancies everywhere from Chula Vista and El Cajon to Oceanside and Mission Valley. This level of demand is just something that that market hasn't seen in the past 20 years.
It’s a reversal of fortunes from only a year earlier, when annual rent growth entered the second half of 2020 at 0%.
Annual rent growth ended the second quarter of 2021 at a record high of 8.4%, far outpacing the previous high of 7% recorded at the end of the third quarter in 2015.
The current environment is a tale of explosive rent growth in 2021. Rents grew by almost 7% during the first six months of the year, the strongest such stretch on record.
Discounting the second quarter of 2020, when rents fell due to the impact of the coronavirus, rent growth had averaged 1.9% during second quarters dating back to 2015. The second quarter of 2021 recorded rent growth of 4.6%, easily the strongest second-quarter rent growth in 20 years in San Diego.
Three San Diego submarkets posted double-digit rent growth in the first half of the year, with the University Town Center area exceeding 14%. Even downtown San Diego reached 6%. The surge in performance has been buoyed by luxury communities, where rents grew more than 9% in the past six months, compared with 7.3% in mid-tier inventory.
However, San Diego’s county board of supervisors passed a measure that commenced in mid-June and lasts for 60 days that set the local rent cap at inflation, or about 4.1%. Importantly, that rate is for renewals, and CoStar’s data reflects average asking market rents, which hit $2,020 per month following the second quarter.
That measure is unlikely to apply the brakes to growth for asking rents in the near term, which have continued accelerating in July. But demand is unlikely to remain elevated near record-high levels, given that occupancies are already north of 98% in many areas of the region, and there just aren’t enough available apartments to continue absorbing at that pace.
San Diego is still under an eviction moratorium, which is helping to keep units filled. Although it is scheduled to sunset at the end of September, after the latest extension, many landlords are operating under that assumption that it will be extended again. In the interim, local governments are flush with money that is intended to help renters backpay rent to their landlords, although reportedly the pace of distributing the more than $200 million in federal and state funds is frustratingly slow.
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