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San Diego’s Multifamily Sector Poised For Growth In 2018

Driving down the I-5 corridor in San Diego one thing is clear: more than skyscrapers, cranes dot the horizon. A lot of this construction is in the multifamily sector, which has seen high delivery coupled with high demand, a trend that is expected to continue throughout 2018. Unit delivery totaled 6,200 units in 2017, compared with 4,300 in 2016, according to a Q4 multifamily market report released by Marcus & Millichap.

This multifamily project is among the many Downtown San Diego projects currently under way.
Multifamily project on Ninth Avenue

“San Diego multifamily is positioned well for the foreseeable future,” Hines Development Director Bhavesh Parikh said. “It is well-known that San Diego needs more housing and therefore the fundamentals are strong in the region.”

Hines is developing Riverwalk Golf Course into a new community in Mission Valley

Mission Valley, which is updating its community plan, will triple its density over the next 30 years, from 12,600 units to an estimated 35,100 units. Other big projects include the proposed redevelopment of the 166-acre Qualcomm Stadium to SoccerCity, which will be decided by voters in November and could add approximately 4,800 housing units.

Big changes are coming to downtown neighborhoods, too. There are 39 multifamily projects under construction or that had planned starts during 2017, according to a downtown multifamily development pipeline compiled by CBRE. The report covers the East Village, Little Italy, Civic/Core, Marina and Cortez Hill areas and the estimated number of units under construction total 10,718.

Additional projects included in an ancillary report, also from CBRE, show that countywide, 92 projects totaling 27,857 units were planned or started during 2017. At present, 4,838 planned starts are projected for 2018. Downtown San Diego, in particular, has seen 20% growth in planned units since 2016, with 2,384 expected to be constructed in 2018.

The Richman Group's seven-story F11 on F Street in Downtown San Diego is part of the new Richman Signature Properties brand.
The Richman Group's F11 on F Street

In addition to San Diego’s housing shortage, growth can also be attributed to shifting preferences among buyers and tenants.

“Another factor [for multifamily growth] is the embracing of multifamily and mixed-use, not just among millennials but also by older folks who want to downsize from large suburban family homes and live in walkable neighborhoods,” Parikh said.

This echoes the findings of the Marcus & Millichap report, which cites diversified job creation, household expansions, out-of-reach home prices and a growing millennial base as reasons for the strong rental market in the San Diego metropolitan area. Area average rents increased 6.7% during 2017 to $1,865/month. Parikh said San Diego’s positive lifestyle attributes, which include its temperate climate and strong job prospects in biotech, life science and the military, will continue to inspire migration to the region.

The Marcus & Millichap report also showed all economic indicators in San Diego are up, with a 1.3% increase in employment year-over-year along with increased construction, population growth and home-pricing trends. As of 2016, the most recently reported census year, the average per capita income in San Diego County was $55,100, which increased by 2.2% from 2015.

The market faces specific challenges, like affordability and availability. Parikh said certain projects aim to meet those needs.

“Residential projects and specifically the increase in the number of homes increases the supply of available housing. Mission Valley is currently anticipating 17,000 new homes through the Mission Valley Community Plan Update, and other San Diego communities will see an increase in housing supply," he said. "Increasing supply at any level will help, and variability in housing types such as affordable units built as part of market-rate projects, senior housing and more multifamily are all factors aiding in crossing the income spectrum. Ultimately, more available housing overall will benefit the full income spectrum."

Due to a lack of construction in affordable inland cities and coastal communities, investors will be lured to places like El Cajon, Vista, Escondido and Pacific Beach in search of construction opportunities, the Marcus & Millichap report concludes. Class-C rents are up 15.9% from a year ago with affordable areas like Mid-City/National City and Escondido registering 12.4% and 10.4% increases, respectively.