Despite slowing job growth in the face of lingering COVID restrictions near the end of Q2 2021, the San Diego apartment market is seeing record breaking demand and growth. This was the message conveyed by Josh Ohls, Director of Market Analytics for CoStar during a recent Mid-Year State of the Market.
County-wide, San Diego has seen a steady unemployment average of 7% during Q2 2021, slightly below the state average of 7.7%. The CoStar Group data suggested that of San Diego County’s 19 cities, El Cajon is seeing the highest regional unemployment at 9.9% trailed by Imperial Beach and National City (both holding 9.8% unemployment each). Considering that during majority of Q2 2021, San Diego and the rest of California Counties were under Color Coded COVID restrictions (which were rescinded on June 15th, 2021), there is renewed hope that unemployment might see a significant reduction during the summer months as more businesses reach full capacity.
Sluggish employment numbers do not seem to be stopping the apartment industry from reaching record revenues. CoStar Group’s data for apartments suggests there is high demand for apartment property despite the challenges that COVID and rent control have had on owners. Multifamily vacancy rates have seen a dramatic drop from 2020 going into 2021. The Stabilized Vacancy Rate is reporting at nearly 2.3%, compared to Q2 2020’s rate of around 4.2%. Overall Vacancy Rate saw a leveling off in Q2 2021 at just over 3.5%. Keith Courtney, managing partner at ACI Apartments says there has been very high apartment transaction volume over the past few months. Mr. Courtney says the strong buyer demand is due to an improving economy, low interest rates, high demand from renters and the belief that this upward trending real estate cycle has a longer runway than previously thought.
This increased demand, coupled with low construction starts for the quarter have resulted in record breaking Rent Growth for the region. Asking rents in the region saw a dramatic 8.1% increase in year-over-year rent change. This has resulted in a historic average rent per unit exceeding $2,000 per month in the San Diego region. By sub-market, this rent increase has been particularly high in the La Jolla/UTC area (14.5%), South I-15 Corridor (11.1%) and North Shore Cities (10.6%). Apartment demand was also up around the county, particularly in Downtown San Diego and Mission Valley/North Central.
These record rents appear to be driving investors back into the market in search of investment opportunities. For instance, CoStar Group’s quarterly transaction volume for apartments has seen a substantial increase, boasting upwards of $350,000,000 in overall volume in Q2 2021 compared to Q2 2020. In additional Year-Over-Year Market Sale Price Growth saw substantial numbers for multifamily assets (9.5%) only overshadowed by the industrial sector which has seen drastic price increases due to low inventory.
The numbers collected from CoStar Group make clear that the San Diego multifamily market continues to be a great opportunity for investors. With exceptional fundamentals including historic ROI for area rents, there is no better time to jump into or solidify property investing throughout San Diego County.