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Tuesday, Feb 27, 2024

High Rents, High Demand Have Investors Putting Money in Multifamily

Apartment complexes have drawn strong investor interest so far this year, with rents on the rise and no sign that the market will cool anytime soon.

Colliers International, in its spring/summer report, said that countywide rental rates are 3.3 percent higher this year than they were a year ago while the price investors are paying to acquire apartment complexes is 11 percent higher than for the same period last year.

“If you look at the county as a whole, the market is super tight,” said Peter Scepanovic, a senior vice president of Colliers specializing in multifamily property transactions.

“The more affordable areas in the county are probably tighter and experience a little bit better rent growth right now than the primary downtown San Diego area, where you have a lot of mid- and high-rise product coming on line,” Scepanovic said. “Places like Escondido, Vista, East County, and South Bay — those markets are exceptionally tight.”

Low Vacancy Rates

Vacancy rates in many of the suburban submarkets are hovering between 2 percent and 3 percent, Scepanovic said.

Downtown San Diego is an exception because so many new projects are coming on line or are about to open, but even so, Scepanovic said the new apartment towers will easily be absorbed over time even with their higher rents because housing is in such short supply and demand is strong.

Out of Town Investors Take Interest

A new wrinkle in the apartment market is that out-of-town investors are starting to take an interest in San Diego County projects.

“We’re seeing more San Francisco area and Los Angeles buyers,” Scepanovic said. “They recognize San Diego as a solid market.”

Indeed, Marcus & Millichap in its most recent report wrote that “San Diego has represented a locale of consistency over the past two years ending in June as metro vacancy hovered between 3.4 and 4 percent.”

“Strong leasing velocity across all classes of apartments has supported this lack of fluctuation, a testament to the county’s diverse economy that features well-paying biotech and defense positions along with a host of hospitality and retail trade-related jobs,” Marcus & Millichap reported.

Driving some of the demand for rentals are home prices that have gotten so high that even higher-income households have been priced out of the market, the firm wrote.

That in turn is pushing up apartment rents.

As of August, Coronado was the most expensive place to rent an apartment with median monthly rents hitting $2,630, according to Zumper, an apartment listing service.

Solana Beach was a close second at $2,450.

El Cajon had the lowest monthly rents in August at $1,300, down $10 from July.

National City had the second lowest rents, averaging $1,340 in August. n


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