Abodo Ranks San Diego 7th Nationally For Apartment Rent Growth
San Diego’s rent growth has lagged behind San Francisco and LA during the past few years, but research analysts are predicting better rent growth in San Diego going forward than other Southern California cities.
Rents in San Diego jumped a whopping 5% in the month of June alone, boosting it to seventh place for rent growth, according to data from apartment finder Abodo. Bisnow caught up with Abodo spokesperson Sam Radbil (above) to shed light on why rents are escalating so quickly here.
“San Diego, specifically, is following a trend that analysts and industry experts are seeing in rapidly growing cities with extremely high demand for rental units due to a large number of young adults who can’t afford to buy a home or don’t want the hassle of owning one,” he says. “This group of renters, along with retiring Baby Boomers who are downsizing and moving into apartments in metro areas, are driving apartment demand.”
Pictured above is Trammell Crow's 313-unit The Alexan in East Village. Trammell Crow also has projects in Vista, Little Italy (below), Fashion Valley and Chula Vista, adding a total of 1,811 units to the region's market.
In San Diego’s case, a combination of factors has created the perfect storm for rents to rise quickly. Considered by Millennials as one of the best places to live, the Downtown market and beach cities have experienced an influx of thousands of young renters. A SD Economic Development Corp study found 72,000 young adults moved into the region over the past decade.
Pictured is Kilroy Realty's planned 608-unit residential component at One Paseo in Carmel Valley.
Despite a five-year boom in apartment construction from 2010 to 2015, rapid growth in new rental households has driven demand for apartments to outpace new product deliveries, the Abodo report notes.
The US rental market experienced historically low demand during the mortgage finance boom, but has steadily risen, shifting to historical high demand for rentals since the mortgage bust, and drop in homeownership, Sam says. “This boom-bust cycle had a negative impact on new apartment starts,” he adds, noting the result is a shortage of apartment stock.
Pictured above is Lowe Enterprises' 292-unit IDEA1 in East Village's I.D.E.A. District.
The large number of existing apartments converted to condos during the mortgage boom exacerbated San Diego's apartment shortage. With low apartment inventory, some analysts have proposed that landlords are increasing rents because they feel pressured by rising demand. Sam suggests, however, landlords feel justified raising prices as inventory tightens.
Abodo ranked California, which persistently has had a low vacancy rate, as one of the most expensive states to live in this month. Overall vacancy in California was 4.1% in Q1 2016.
About 36% of US households, or 110 million people, lived in rentals last year, according to a recent report from the Joint Center for Housing Studies at Harvard University. Renter households have grown by 9 million since 2005, the largest 10-year gain in US history, while homeownership continues to decline. Nearly half (49.3%) of San Diego’s 3.2 million residents live in rental housing, according to a recent JLL multifamily report, which noted the average rent is $1,627/month and apartment occupancy is 97.6%.
Pictured above is The Richman Group's seven-story F11 on F Street in Downtown San Diego, part of the new Richman Signature Properties brand. The firm is also underway on the 22-story, 226-unit Library Tower in East Village.
Pictured is Wood Partners' 478-unit The Rey on Cortez Hill in Downtown SD. The developer is also building a 110-unit apartment project in Little Italy.
The JLL report cited job and population growth, along with the high cost of homeownership, as the main reasons for SD’s strong apartment demand. According to the Downtown San Diego Partnership, 32,200 jobs were added to the San Diego job market over the last year. The city’s unemployment rate dropped to 4.2% in May 2016, below the threshold most economists consider full employment, according to the latest report from the California Employment Development Department. Over the previous three years, San Diego added 68,000 jobs.
Pictured is CityView's 129-unit AV8 underway in Little Italy.
Interestingly, the bulk of new renters nationally—about 4.3 million—over the past 10 years were in their 50s and 60s, with ages 70-plus also seeing a jump, notes the Abodo study. Another 3 million renters were 30- to 40-year-olds, while new Millennial renters only numbered about 1 million.
Rental households are expected to grow as Millennials age and strike out on their own, wrote the Abodo researchers. The future for vacancies, however, is a little less clear. Many multifamily developers are proceeding cautiously or are on pause, Bloomberg reports, as steeply climbing rents are beginning to level off. Millennials are predicted to create more than 2 million new households annually until 2025, keeping the rental market robust.
According to Civic San Diego, about 5,000 apartment units are under construction, and an estimated 10,000 units are planned or in the pipeline.