Rent Growth Remains Well Ahead of Market's Long-Term Average
By Joshua Ohl CoStar Analytics October 7, 2022 | 8:59 AM
In the San Diego multifamily market, the script shifted relatively quickly by the end of the summer. Asking rents fell in September for the first time since October 2021 and marked the largest drop in rents, at 0.8%, since the start of the pandemic. Overall, rents were up only marginally, averaging 0.2% during the third quarter.
The market correction has come as overall asking rents in San Diego ended the third quarter up 7.6% year over year, representing a steady deceleration in year-over-year rent growth after peaking above 14% at the beginning of the year.
Demand has held up admirably in San Diego during 2022, particularly in relation to the neighboring Inland Empire and Orange County markets, where net absorption — which measures the change in occupancy over time — has turned negative year to date. In San Diego, net absorption through the first three quarters outpaced the regional average between 2012 and 2019 by more than 500 units.
At the midpoint of 2022, cities in the North Shore cities area, University Town Center, Mission Valley and the neighborhoods located along the South Interstate 15 corridor saw the largest gains year over year, averaging more than 17% growth between them. Those markets entered the final quarter of 2022 with rent growth moderating toward 6%. Several of these areas, including downtown San Diego, saw rents actually dip during the third quarter, led by Mission Valley’s 2% quarterly drop.
One quarter later, the leaderboard has been overtaken by more affordable areas of San Diego, including the East County, Chula Vista and North County regions, where rent growth has remained strong even as it has moderated. Those San Diego neighborhoods have seen rents grow by an average of 9.9% year over year.
The moderation in rent growth in 2022 has been felt most acutely within luxury properties. That market segment had seen annual rent growth of 16.6% at the end of the first quarter, but it has dropped to 7% at the end of the third quarter.
Rent growth in mid-tier inventory has also moderated to the tune of 10.1% at the end of the third quarter, down from 17.7% at the beginning of the year.
Conversely, rent growth has held steady in workforce housing properties, where it entered the final stretch of the year with rents rising 6.1% year over year, the same figure that market segment saw at the beginning of 2022.
But even as rent growth has moderated in 2022 on a year-over-year basis, it remains well above the market's long-term average of 3.5%, and rents in nearly every area of San Diego are still growing above respective historical averages.
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