For property investors in San Diego, the multifamily housing market presents both opportunities and challenges. ACI Apartments’ latest 5+ Unit Multifamily Market Report provides critical insights into rental trends, vacancy rates, construction activity, and investment strategies. Here’s what you need to know to make informed decisions in 2025.

Vacancy Rates and Market Demand

The demand for multifamily properties in San Diego rebounded significantly in 2024, with net absorption reaching its highest level since 2021. However, this surge was largely driven by widespread rental concessions, such as free rent and lease specials. As a result, overall vacancy rates remained steady at 5.3%, with 3-star properties experiencing the most notable improvement.

Luxury apartments, particularly in Downtown San Diego, faced the highest vacancy rates, now exceeding 9.8%, due to an influx of high-end units. With 3,800 additional units set to enter the market in 2025, investors must carefully assess location and asset class before making acquisitions.

Rental Market Insights for Investors

Despite demand, rent growth remained sluggish, rising only 0.9% in 2024, slightly below the 1.0% national average. The widespread use of rental concessions means that while listed rents appear stable, effective rents have declined in some areas.

Notably, rents dropped in Balboa Park and Downtown, whereas the Central Coast submarket outperformed, offering the highest year-over-year rent growth. Investors should focus on mid-tier and workforce housing, where demand is stronger and concessions are less prevalent.

New Construction and Supply Considerations

San Diego’s persistent housing shortage remains a key factor shaping the investment landscape. Although 7,800 units are currently under construction, the region still lags behind the estimated 15,000 units needed annually to meet demand. High development costs and restrictive zoning laws continue to slow new deliveries.

Key submarkets like Mission Valley and University City are at the forefront of new development efforts, with large-scale projects increasing density. However, the dominance of luxury units over mid-tier and workforce housing presents a challenge for investors targeting affordability-driven demand.

Investment and Sales Market Trends

San Diego’s multifamily investment market showed signs of recovery in late 2024, with total sales volume reaching $3.2 billion, the highest since 2021. Despite economic uncertainty, cap rates stabilized between 4.3% and 5.6%, making San Diego an attractive option for long-term property investors.

Key transactions include the $185 million sale of the Preserve at Melrose in Vista and the $167 million acquisition of Windsor Rancho PQ. Investors are particularly drawn to life sciences employment hubs, such as UC San Diego’s innovation district and North County’s expanding tech sector.

San Diego’s Economic Outlook for Property Investors

San Diego’s economy remains strong, supported by its three major industries: military, innovation, and tourism. However, high living costs and declining household formation rates pose challenges for sustained rental demand.

The city’s robust job market continues to attract businesses, yet affordability concerns may drive renters to seek alternative markets. Investors should consider submarkets with lower rental costs and strong employment growth, such as Chula Vista and East County.

Final Thoughts for Investors

San Diego remains a prime market for property investors, but strategic asset selection is key. Understanding the dynamics of rental concessions, vacancy trends, and new supply will be crucial for maximizing returns in 2025.

For an in-depth analysis of the latest market trends and investment opportunities, download the full ACI Apartments 5+ Unit Multifamily Market Report.

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