San Diego is in the middle of a significant multifamily supply wave -
and it’s beginning to show up in rents, concessions, and vacancy.
Data source: CoStar Group Analytics | Analysis credited to Joshua Ohl
According to CoStar Analytics, the city entered 2026 with nearly 9,500 market-rate units under construction. After 4,900 units delivered in 2024 and a 20-year-high 6,200 units completed in 2025, another 4,800 units are scheduled to deliver in 2026.
That’s nearly 16,000 units opening in a three-year stretch which is the most in 25 years.
Where Supply Is Concentrated
New construction is heavily focused in:
- Balboa Park neighborhoods (North Park, Hillcrest, University Heights)
- Mission Valley
- Kearny Mesa (inventory projected to grow over 50%)
- South County, where vacancy has already climbed to 7%
Citywide vacancy reached 5.8% at the end of 2025, a 15-year high, after new supply outpaced absorption by 40%. With additional deliveries scheduled this year, vacancy is likely to rise further in 2026.
How This Affects Rents
1. Concessions Increase First
Before landlords cut asking rents, they increase concessions — free rent, parking incentives, or move-in credits. Effective rents soften even if advertised rents appear stable.
2. Amenity Competition
Most new projects are institutional, Class A communities with pools, gyms, coworking space, and structured parking.
This creates pricing pressure on older, smaller buildings. Renters comparing a 1970s walk-up to a new amenity-rich development may expect discounts — especially in heavy construction corridors.
3. Pressure on Mom-and-Pop Operators
In areas like Kearny Mesa and Mission Valley, smaller owners may feel pressure first. Institutional operators can afford aggressive lease-up concessions; smaller buildings often adjust pricing sooner to maintain occupancy.
Impact on Property Values
Multifamily values are driven by NOI and cap rates.
If vacancy rises and effective rents soften:
- NOI compresses
- Buyer underwriting becomes more conservative
- Values may adjust downward, particularly near major lease-ups
Properties with strong locations, unique character, or rent upside tend to hold value better than assets underwriting at peak rents.
The Bigger Picture
This is largely a timing issue, not a collapse in demand. Much of this supply was financed during low interest rate years. With construction costs high and financing tight, future starts are already slowing.
Short term: more competition and softer effective rents in major construction areas.
Long term: San Diego remains supply-constrained relative to demand.
Bottom Line:
Don’t accept “the market is soft” as an excuse. Push your property manager to maximize achieved rent by upgrading the basics that move the needle fast—refresh photos, improve the listing copy, syndicate everywhere (especially Facebook Marketplace, which is one of the best sources for local renters), and increase showing volume beyond a single open house (private tours, flexible time blocks, and faster follow-up).
If you need to stimulate demand, lead with concessions before rent cuts (they protect long-term rent comps and reset leverage). At the same time, run a real rent analysis (true comps + effective rent after concessions), pressure-test your next 12–24 months of cash flow, and be intentional with capital decisions: evaluate ADUs only if the execution risk and take-out financing pencil, and proactively talk to lenders now to get refinance/take-out quotes so you’re not making decisions blind.
