March 12, 2025

Multifamily Sales Velocity in San Diego Gains Momentum Heading Into 2025

Q4 2024

While there was little change in operating conditions during the closing months of the year, annual shifts in property fundamentals demonstrate a stable multifamily market in San Diego. Development has continued to accelerate since 2021, with 2024 recording the highest number of new units coming online since 2018. Despite above-trend levels of deliveries, the local vacancy rate has remained within a tight range over both the short- and the long-term, rising only 50 basis points over the past five years. While new supply has hampered performance metrics across many other major markets in recent years, steady demand in San Diego has resulted in continued rent growth. Asking rents advanced by 1.9 percent in 2024, with a similar increase likely in the coming year. The Downtown submarket is one of the few parts of the San Diego market with any significant vacancy, but conditions are improving. The vacancy rate in Downtown San Diego dropped by 60 points in 2024 to 7.6 percent while asking rents ticked higher.

The multifamily investment sales market in San Diego posted improving conditions in the fourth quarter. While transaction volume during the first half of the year was light, activity picked up significantly to close the year. Transaction totals during the second half of 2024 closely tracked the region’s historical pace, offsetting some of the limited sales volume in the first half. Pricing increased in 2024, pushed higher by healthy transaction activity involving Class A and newer Class B properties. The median price in 2024 was $361,500 per unit, up 36 percent from the 2023 figure. Properties built within the past decade sold at a median price of nearly $440,000 per unit in 2024, and a few properties built since 2020 changed hands at more than $500,000 per unit.

Looking ahead

Multifamily property performance in 2025 is expected to closely track conditions recorded in each of the past two years. Completions of new units will be higher than the region’s long-term trend, applying some modest supply-side pressures on a market where renter demand is traditionally very steady. Renter demand should be healthy enough to continue to yield modest rent growth, even as the vacancy rate is forecast to inch higher for a third consecutive year. While the direction of the vacancy curve might suggest somewhat more challenging conditions for operators, the degree of recent increases has been modest and the overall vacancy rate will remain low. Quarterly vacancies have averaged just 4 percent during the past five years, and the rate has not ticked above 5 percent for more than 15 years, a trend that is expected to be extended in 2025.

The multifamily investment market in San Diego is expected to continue to advance in the year ahead, building upon some of the momentum generated in 2024. Local properties are expected to post healthy fundamentals and continued rent growth should attract investors. Further, sales of Class B and Class C properties have traditionally fueled the investment market, accounting for more than 80 percent of transactions since 2018, and these property groups are likely to have the strongest rent gains and tightest vacancies in 2025. The healthy property performance in San Diego’s core multifamily product should continue to attract investment capital. During much of 2024, Class A and Class B properties accounted for more than half of the transaction totals, as investors acquired some of the inventory that has come online in recent years.