Employment gains support fundamentals for San Diego’s multifamily market

San Diego multifamily market overview:

Multifamily operating conditions in San Diego stabilized during the second quarter, though property fundamentals remain a bit softer than they were one year ago. Conditions varied between individual areas, and some longer-term trends showed signs of shifting direction across several submarkets. While rents were generally closely tracking year-earlier levels, several of the area’s largest submarkets posted modest gains, while some former leaders, such as Balboa Park, lost momentum. In the five-year period ending in 2025, rent growth in Balboa Park averaged nearly 10% annually. But in the past 12 months, rents in the submarket have dipped by nearly 2.0%. Submarket vacancies posted similar trends, with areas such as Clairemont/Linda Vista/Mission and National City/Chula Vista posting slight vacancy upticks into the mid-4% range. In contrast, Downtown San Diego still features the market’s highest vacancy rate at 8.5%, but the figure has declined slightly from its early-2025 peak and rents have advanced by 3.0% in the past year.

There were only a few properties that changed hands in the second quarter, though each sold at heightened pricing relative to its asset class. The increase in median pricing this year is being fueled by Class A properties accounting for a larger share of the total, as well as a steep increase in per-unit prices in Class B assets. To this point in 2026, Class A properties have accounted for approximately 30% of all sales, up from less than 10% last year. Pricing for Class B properties is up 40% this year, with a median sale price topping $500,000 per unit. Much of that spike is being driven by location, with the bulk of the 2026 Class B sales occurring in coastal and higher-income areas such as La Jolla and Encinitas. Still, deals are occurring across the market, with no single submarket accounting for an outsized share of sales.

Looking ahead for San Diego:

The sustained pace of construction will continue to weigh on the market. Completions are forecast to total roughly 6,400 units for the second consecutive year, nearly doubling the market’s long-term annual average. More than half of the total deliveries for this year are slated to come online in Balboa Park and Mission Valley areas, which could create some isolated concentrated supply-side pressures. Market rents are expected to hold at current levels or move higher, though the vacancy rate will likely be impacted. Recent employment gains should help support renter demand in the market, offsetting much of the impact of the influx of new units. Permitting is forecast to slow this year, with around 20% fewer permits being issued than in 2025. As the development pipeline begins to shrink next year, there may be more significant improvement in both asking rents and vacancy.

Investment activity is expected to pick up in coming months, particularly in Downtown San Diego and Balboa Park, though total activity is likely to remain close to what was recorded in 2025. There should also be an uptick in sales in the Chula Vista/Imperial Beach and the East County submarkets, including cities such as El Cajon and La Mesa, though these are not expected to account for the outsized share of sales they have captured in recent years. If historical patterns hold, Class C assets should begin to account for a larger share of sales in the second half, reducing the concentration of Class A sales recorded thus far in 2026. Even so, Class A properties are still forecast to represent a larger-than-average share of transaction activity through year-end. Multifamily cap rates are expected to remain near their current average of 4.7%, consistent with the stability observed since 2023.

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