Rent growth slowed significantly in San Diego’s multifamily market in 2022, but its unusually tight vacancy rate could make it a refuge for investors amid economic uncertainty. Victor Calanog, Head of Commercial Real Estate Economics at Moody’s Analytics, shares his analysis.
‘Worrisome’ rent trends in San Diego’s apartment market
Vacancies remain tight for San Diego apartments, ending the third quarter of 2022 at 3.3% — a 20 basis point decline relative to the second quarter. But rent growth has been decelerating significantly, according to Moody’s Analytics CRE.
Following a 3.2% increase in the first quarter, effective rents grew by a relatively minuscule 0.5% and 0.8% in the second and third quarters, respectively. Those are worrisome trends given the second and third quarters ought to exhibit seasonal strength.
The market also appears to be slowing down based on year-over-year trends. Year-over-year effective rent growth appears to have peaked in the first quarter at 19.1%. It has slowed every quarter since then, with the year-over-year change down to 11% in the third quarter. Moody’s expects an annual rent growth figure of something on the order of 6% for all of 2022. That’s not a bad absolute figure, but it’s less than half the 15.1% effective rent growth in 2021.
Top submarket: Mira Mesa/Rancho Bernardo
Some submarkets continue to exhibit relative strength. The Mira Mesa/Rancho Bernardo neighborhood posted the strongest quarterly effective rent growth for the metro, at 1.7%. Vacancies here fell 40 basis points, down to 3.3%. That drop represents the largest improvement in vacancy across all San Diego submarkets.
Tight market could offer protection amid recession
A metro-level vacancy rate below 3.5% is still very tight — tightness not seen since early 2017. As the economy enters a stage where a recession seems more and more likely, the San Diego apartment market may represent a relative refuge from the storm, even if rent growth weakens somewhat.
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