The San Diego multi-family real estate market remains strong for the 1st quarter of 2022.
See below a summary of the highlights from the CoStar Multi-Family Market Report prepared by Voit Real Estate Services for the first quarter of 2022 and a forecast of what is ahead.
Annual net absorption of units moderated to 6,976 units, with 5,365 units delivered in the last 12 months. Expect net delivery of units to exceed absorption in 2022; however, the housing units supplied are still well below what is needed.
San Diego is building fewer units than is needed overall to keep pace with the growth. 8,100 units are currently under construction; San Diego needs over 13,500 units. Expect further redevelopment of former retail sites into multi-family in the coming years. Inventory will remain historically low with high demand.
Overall Vacancy Rate Trending at 2.7%. Slightly higher vacancy expected by the end of 2022, with the highest vacancy in Downtown and Mission Valley.
Vacancy by Bedroom are studios exceeding 4% vacancy with the lowest vacancy in 2 & 3 BR’s. The trend is a slightly higher vacancy in both 1BR & Studios going 2022. Asking market rent has soared in the past year with a 13.8% increase, with the average monthly rent at $2,240/unit.
Expect market rent growth to slow from the historically high in 2021 to 7-8% annual growth for the rest of the year.
Sales of multi-family units continue to be strong, with an average sale price of $420,000/unit, with roughly 90% of the units sold this last year at a cap rate of less than 5%. The forecast is only for a modest increase in sales volume and price/unit this next year, with cap rates leveling out and expected to rise slightly.
San Diego County’s unemployment rate was down slightly to 4%, with San Diego County’s population hitting 3.398 million people, up 6.6% over the 10 years 2010-20.
The housing crisis will remain with us going into the near future despite the State’s push for more housing and the loosening of development regulations. The trend for the redevelopment of large retail sites into housing and an increase in ADU’s (additional dwelling units) is expected to bring some relief to the housing inventory.
Overall, San Diego remains a viable solid housing market. The one wildcard not addressed in the CoStar report is the increase in interest rates and how that will affect future demand and values.
I expect there may be more softening than projected as a result of the interest rates moving higher, but we will have to see how that plays out for the remainder of the year.