Amidst Challenges of 2020, San Diego’s Multifamily Investment Market Remains Resilient, Poised to Rebound

SAN DIEGO, CALIFORNIA (MARCH 17, 2021) -- Despite an expected slowdown due to the COVID-19 pandemic, the San Diego multifamily market remains resilient and well-positioned for a comeback quicker than many other markets across California.

While there were few San Diego multifamily investment sales that closed since the coronavirus first hit last March, the market is fundamentally strong. This can be attributed to the region’s economics of high demand and low supply. Reasons for this imbalance are the lengthy and often onerous entitlement processes, and the fact that the area is, for the most part, built out and landlocked from Mexico, the Pacific Ocean, Camp Pendleton and the mountains. That makes finding new development sites very difficult.

However, the slowdown in transaction activity does not reflect demand for multifamily product, which remains robust. Rather it is more a sign of some near-term uncertainty in the market and also a lack of product for sale. There are few opportunities to purchase multifamily assets in the city, which was also true pre-COVID.

There is an extreme amount of capital looking to be placed in San Diego; however, since the city matches that demand with so few deals, prices are being driven up. Investor appetite remains very strong among both institutional and private investors, who are competing for product across all multifamily asset classes – A, B and C (value add).

Why is capital is chasing asset opportunities?

Rent growth
San Diego is one of the top markets in the state in terms of rent growth. Rent growth in San Diego is up nearly 2 percent this year, and asking rents are forecasted to increase 3.5 percent by the end of 2021, reaching 5 percent in 2022. In contrast to other California markets, rent growth fell roughly 10 percent in the San Francisco/Bay Area and more than 5 percent in Los Angeles.

Job Growth
San Diego added 34,800 jobs in 2019, boasting the fastest job growth in Southern California, reported The San Diego Union-Tribune. Additionally, that job growth is outpacing new homes/apartments.

Pro-business
The city of San Diego has solid political leadership that is very pro-growth and pro-business and is behind a thriving business climate. The city boasts a flourishing life sciences sector and has a large military presence in Camp Pendleton, Miramar and Naval Base San Diego, making it the military’s largest concentrations of personnel on the West Coast.

The city is also a hotspot for tourism. While the retail, hospitality and tourism sectors were hit extremely hard due to COVID-19, San Diego remains resilient through it all, making the trajectory only that much more positive. Once more people are traveling again and the economy opens back up, the market will catapult itself faster than other markets.

Transaction activity is picking up
Typically, the San Diego multifamily transaction market is just under $2 billion annually; in 2020, it was $1.2 billion. Now, as the economy begins to more widely reopen and vaccines are rolled out, transactional activity is forecast to accelerate. Deals are already moving forward. Toward the end of last year, the market saw a few of the West Coast’s largest multifamily transactions including the $313 million Vantage Point and $208 million Broadstone Coronado trades.

Additionally, the Conrad Prebys Estate is marketing 58 multifamily properties in San Diego County that total nearly 6,000 units of low-cost housing (workforce-type housing), reported KPBS.org. It is a massive and widely marketed portfolio – one of the largest in the country. Due to its size, the portfolio is an opportunity to instantly gain scale in the San Diego market.

This immense transaction is also expected to spur significant activity because a new owner is anticipated to sell off a large number of properties/units. Most properties are considered C locations, and many are value-add deals, allowing an opportunity to boost net operating income by updating units/amenities.

While the precise strategy of a new buyer is unknown, it is expected to create a big wave of activity. The sale, in fact, could unlock more than $1 billion for the many charitable causes supported by the nonprofit Conrad Prebys Foundation, according to KPBS.org.