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New Apartment Units Are Flying Off the Shelf in San Diego

Demand in the Region Reaches Record Levels

By Joshua Ohl CoStar Analytics November 9, 2021 | 2:34 P.M.

San Diego is amid its strongest run of apartment demand in more than 20 years. Over the past 12 months, almost 10,000 more apartment units have been absorbed than vacated. The stabilized vacancy rate, which measures the vacancy rate in buildings that have reached 90% occupancy following delivery or are older than 18 months, has fallen to a record low of below 1.7%.

The overall vacancy rate, which measures every market-rate apartment building in the region, regardless of when it delivered, has reached an equally low historical rate of 2.3%. The strong demand and record-low vacancies in the San Diego apartment market are due, in part, to new inventory.

When reviewing new inventory with more than 100 units since 2018, San Diego has seen a relatively smooth pattern of monthly absorption averages, or the number of units that have been occupied, during lease up.

For buildings that delivered in 2018, monthly absorption averaged 14 units per month, with the average new apartment building reaching a stabilized 90% occupancy within five and a half quarters.

The average time to stabilize apartment properties built in 2019 was like the prior year, although monthly absorption ticked up to 15 units per month.

Last year’s deliveries, of which there were only eight of that size, stabilized in an average of 5.75 quarters, slipping back to 14 units absorbed, on average, per month.

That relatively smooth historical performance has been shattered in 2021. Thirteen apartment buildings with more than 100 units have delivered this year, like 2018 and 2019, totaling more than 3,500 units. While many of these buildings are still in lease up, monthly absorption nearly doubles what the average new complex built since 2018 saw. This set of buildings has averaged more than 28 units of absorption per month, and they are on pace to stabilize in three and a half quarters.

Even in development-heavy downtown San Diego, where nearly 5,000 apartment units have delivered since 2018, the vacancy rate has fallen into single digits in 2021 for the first time since 2017, and it is currently amid its longest stretch of sub-10% vacancies in more than 15 years.

Given that the market's development pipeline consists of only 7,200 market-rate units, there is little concern that new deliveries will apply upward pressure to the vacancy rate in the near term.

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