San Diego mid-2023 apartment market outlook

San Diego mid-2023 apartment market outlook

Relatively moderate construction activity could save the San Diego apartment market from a supply glut and help it weather stormy economic conditions. Victor Calanog, Ph.D., Commercial Real Estate Economist, shares his take, leveraging data from Moody's Analytics CRE.

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San Diego rents fall for the first time since 2021

San Diego apartments appear to be at a crossroads: Vacancies remained exceptionally tight in Q1 2023, at 3.5%. Rents, however, fell 0.3%, according to Moody’s. This is the first time rents have declined in San Diego since early 2021. 

To be fair, a 0.3% drop can be considered marginal, Calanog says. It may also be driven by seasonal weakness, as leasing activity tends to ramp up in the second and third quarters. 

Modest new construction could ease any recession impact

The more worrisome macro-level trend is how inflation, though trending downward, continues to prompt the Federal Reserve to raise interest rates. If recent turmoil leads to a real pullback in credit, a recession may well come to pass in the next 12 to 18 months.

Fortunately, San Diego supply growth numbers appear moderate. The relative lack of a supply glut will support rents and vacancies, even if demand wanes. 

Submarket to watch: El Cajon/Santee/Lakeside

Some neighborhoods will likely outperform others: the El Cajon/Santee/Lakeside submarket is forecasted to have the lowest vacancy rate in the metro at the end of 2023, at 1.7%. 

All bets are off if we do encounter a recession, but San Diego appears to be in a better position to weather volatility relative to markets with record-breaking supply growth forecasted.

By the editorial team at Story by J.P. Morgan

What’s the multifamily outlook in other U.S. metro markets? Watch our mid-2023 analyses for more cities across the country. 

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