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San Diego Multifamily Market Sees Stabilized Vacancies Fall to Record Low

Landlords Have Responded with Aggressive Rent Hikes

By Joshua Ohl CoStar Analytics June 3, 2021 | 2:49 P.M.

San Diego is in the midst of a run of historically high apartment demand and rent growth in the multifamily market.

More than 7,000 apartment units have been absorbed in the past 12 months, a metric that measures the number of move ins versus move outs, and little of that was supply induced. Although more than 4,300 units have delivered across the region over that period, more than half of those delivered in the past two months with roughly 100 of those units absorbed to this point.

The past three completed quarters have recorded the highest quarterly demand on record in San Diego. That, in turn, has led to the stabilized vacancy rate to fall to the lowest level on record.

The stabilized vacancy rate tracks multifamily communities that have reached 90% occupancy following delivery or are older than 18 months. This is an important metric to track because as it rises, it might indicate migratory patterns away from the market or renters moving from older communities into new construction.

Conversely, as the stabilized vacancy rate contracts, landlords achieve pricing power for their properties, which is reflected in current rent growth. Across San Diego, rents have already increased 4.3% year to date. Only the first half of 2015 reached that level of rent growth during the first two quarters of the year, and there’s still one more month of the second quarter of 2021 for rents to continue rising.

The stabilized vacancy rate is 2.7% compared to the overall vacancy rate of roughly 4%. From 2015 through 2020, the stabilized rate averaged 3.9%, while the overall vacancy rate averaged 4.6%. The vacancy rate ended the first quarter of 2021, prior to the wave of second quarter deliveries, at 3.5%, the lowest level on record.

While the drop in the stabilized rate from an average of 3.9% to 2.7% may not seem like a significant decline, it is a driving factor in rent growth since landlords have less concern with finding tenants to fill vacant units with so many areas of the region being almost entirely occupied.

In supply-heavy Mission Valley, the stabilized rate is under 3%. In the Chula Vista and North County areas, it’s 2%. And along the north Interstate-15 corridor, which includes Vista and San Marcos, the rate is below 2%.

But the eviction moratorium that has hovered over the region amid the pandemic runs through Aug. 15, at a minimum. A recent federal court ruling denied a bid to halt the two-month extension that begins this month. That could have an adverse effect on occupancies when it’s lifted, if landlords across the county begin mass evictions of renters who have failed to pay rent.

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