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San Diego Multi-Family Investment Activity Exceeds $1 Billion YTD

Region’s Multi-Family Market Vacancy hits below 4.0% during fall 2018

San Diego CA—  Cushman & Wakefield’s newly released fall report for the San Diego Multi-Family market revealed healthy, declining vacancy trends and strong rental pricing, which in return has resulted in solid ongoing investor interest and activity. The report indicated countywide multi-family vacancy dropped to just 3.72% in September, down from 4.08% six months ago. Meanwhile, investment sales volume for properties $5 million and greater surpassed the $1 billion mark by the end of Q3 2018.

“Nearly 90% of the more than $1 billion in multi-family sales year-to-date 2018 occurred in just the second and third quarters,” said Jolanta Campion, Cushman & Wakefield’s Research Director in San Diego. “For the last three consecutive years, total transaction activity has remained above the 16-year long-term annual average of $1.6 billion. And while it would require a robust fourth quarter to reach that mark here in 2018, it is still possible.”

According to the report, among some of the top sales of the year have included: Domain San Diego, 379 units in San Diego Central sold in June 2018 for $132 million; Sofi Shadowridge, 314 units in the Highway 78 Corridor for $115 million in June 2018; Bella Posta, 344 units in San Diego Central sold for $97.75 million in April 2018; Barham Villas Apartment Homes, 168 units in Highway 78 Corridor sold for $52.2 million in October 2018; and Stone Creek Apartments, 97 units in South County sold for $32.45 million in June 2018.

The report highlights that private high net worth investors have been the leading buyers of multi-family assets in 2018 comprising approximately two-thirds of the buyer pool, similar to the overall buyer composition for the U.S., per data from Real Capital Analytics. Ray Adams, Managing Director with Cushman & Wakefield’s Multi-Family Group in San Diego, said, “Private high net worth investors have acquired more multi-family properties than any other group for the last five consecutive years in San Diego, and by a distant margin in the last few having comprised over half of the volume each year beginning in 2015. We would expect these private buyers will continue to lead the field for the foreseeable future.”

Five of San Diego’s six multi-family submarkets tracked by the report had vacancies below 5.0%–a sub 5.0% is considered a landlord’s market. Evaluating vacancy by submarket, the Highway 78 Corridor posted a market low of just 2.46%, followed closely by South County at 2.56%, Interstate 15 Corridor at 2.70%, East County at 2.81%, and then North County Coastal at 4.21%. San Diego Central, which with 37,410 units reflects the largest multi-family submarket with essentially double the number of apartment units of most other submarkets, also reported the highest vacancy of 5.77%, although still considered stable and healthy.

In conjunction with the tight vacancy, the countywide multi-family average rental rate for all San Diego was $1,960 per month, 5.7% higher than a year ago and 12.4% higher than two years ago. The average rent for units built since the 2000’s was $2,359, compared to $1,787 for units built prior 2000. The average asking rent was the highest in North County Coastal ($2,376) followed by San Diego Central ($2,162), Interstate 15 Corridor ($2,056), Highway 78 Corridor ($1,723), South County ($1,712) and East County ($1,612). The report drew upon data provided by MarketPointe Realty for rental rate figures as of September 2018.

Campion said, “A significant driver in multi-family demand is the fact San Diego employment continues to record job growth, adding 26,900 jobs (+1.9%) year-over-year through September 2018 resulting in unemployment of 3.2%, according to the Bureau of Labor Statistics.” She added, “San Diego remains a superior location for those seeking a desirable coastal workplace, largely due to its ideal year-round weather and an abundance of outdoor activities and entertainment destinations that make it a really enjoyable environment—which of course comes at a price.”

She added, “Like many growth markets across the country, housing affordability is also becoming a deeper concern for San Diego, especially among millennials who make up almost a quarter of our regional population and who play a critical role in fueling future job and economic growth. However, San Diego is still a more affordable place to rent (or buy a home) when compared to other major gateway markets, including San Francisco where the median home price is approximately three times greater than San Diego.”

Addams concluded, “Yet in San Diego, only 23% of households can still actually afford to purchase the median priced home compared to 26% in California and 53% nationwide as of mid-2018 according to C.A.R. In turn, this is leading to greater rental demand in our market where job growth across multiple industries remains robust.”

Click Here to access San Diego Fall 2018 Multi-Family MarketBeat Report

Report sources: www.bls.gov, bea.gov GDP, Moody’s Analytics, Real Capital Analytics, C.A.R., and Market Pointe Realty.

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