Although many metros have seen a boon of new housing supply this year, recent surveys from RealPage and Yardi Matrix show certain locations, including San Diego, are absorbing their limited new inventory. This in turn has pushed the United States occupancy even higher for the foreseeable future.
The studies suggest that in the 2018 market, San Diego continues to hold one of the stronger economies in the Southern California market as it reports steady annual rent growth. According to the studies, San Diego has seen a consistent leveling off in rent growth over the past year to an average of 4.1% but that is still well above the 2.9% national rent growth average reported by RealPage. The rent growth was particularly prominent in rent-as-lifestyle markets which saw a 12-month average growth from around 2.5% in September 2017 to nearly 2.9% in September 2018. It seems that despite uncertainty about the strength of the current cycle, high occupancy across most metropolitan areas continue to drive rents higher.

Annual Rent Change Leaders and Laggards

The reason for this high occupancy? The surveys suggested a combination of factors, with most sources pointing to record low unemployment numbers and a higher cost threshold for buying a home. Explanations from both Yardi Matrix and CoStar group suggest that nationwide, below average unemployment numbers and strong economies are leading to steady absorption of new product. “Annual job gains reached 2.54 million in September,Market Rent Growth by Asset Class - San Diego about 500,000 jobs more than September 2017’s annual total” explains Chuck Ehmann, Real Estate Economist for Property Management Software service firm RealPage, adding that unemployment “dipped to its lowest level since 1969 despite a stubbornly low labor force participation rate and an improving, but weak, employment-population ratio.” In San Diego, the unemployment rate continues to decline to a rate of 3.4% as of August 2018, well below the state average of 4.3%.

The studies also showed evidence that a shift in the current economic cycle may be due in large part to lingering questions on how to solve housing shortages. With an occupancy field that exceeds 95%, San Diego and most other California cities have seen significant declines in transaction volume in 2018 despite most major metros maintaining modest to above average rent growth. Organizations like the CoStar Group suggest it is in large part due to uncertainty on topics like rent control and a lack of enthusiasm for new construction.

Monthly Employment Change and National Unemployment RateDespite this uncertainty, the strong fundamentals continue to aid San Diego cash flow toward further persistent positive economic trends well into the future market. The further along in this economic cycle we go, the more chances investors will have to re-evaluate their assets and adjust accordingly. Although there continues to be indecision about how to increase available housing in San Diego and other California regions, potential investors should see an opportunity in the record high occupancy and moderate rent growth potential of the region. With unemployment and economic factors continuing to show strength, there is no better time to act on shoring up an investment before the market changes again.

Read Chuck Ehmann’s Realpage article “Monthly Job Gains Continue, Unemployment Keeps Falling in Latest National Numbers” HERE

Read the article “RealPage® Reports Accelerating Rent Growth and Tightening Occupancy in the U.S. Apartment Market” HERE

Find the Yardi Matrix “Multifamily National Report – September 2018” HERE