San Diego rents falling in some areas

by Phillip Molnar

San Diego average rents are essentially flat, or dropping in some cases, as the apartment construction boom continues.

Average rent in San Diego County in early May was $2,520 a month, rising 0.3% over the past year, said real estate tracker Costar. That was lower than the nationwide increase of 1.1%.

Renters’ experiences may differ based on location, or complex to complex. In general, the most expensive markets have seen rent reductions and less expensive areas, such as National City and parts of East County, have seen small increases.

Property managers have prioritized concessions in the past year, such as a month of free rent, to keep tenants or to get new ones.

“Landlords are increasingly prioritizing occupancy,” said Joshua Ohl, CoStar director of market analytics.

He said vacancy levels are improving for landlords — 5.1% average, compared with 5.45% around the same time last year — but the market is still coming down from rapid rent increases during the pandemic. He said some areas of the county experienced three to four years of rent growth in a 12- to 14-month period.

In the first quarter of 2022, San Diego County rent had increased 12.3%. CoStar said the historical average for rent growth is about 3.2% a year.

Ohl said rents tend to rise as vacancy levels drop. But that isn’t happening in San Diego because of inflation. Ohl noted San Diego County was tied for the highest inflation rate in the nation in March, 3.8%, and wage growth has not kept up locally, and nationwide, with housing costs.

Also, experts point to the county’s robust apartment construction as another reason why landlords cannot charge more. There are roughly 4,000 new apartments opening this year, nearing totals for the past few years, which were seen as banner years for multifamily construction.

Nathan Moeder, a San Diego housing analyst with London Moeder Advisors, said apartment construction over the past few years has kept vacancy rates higher and stopped many landlords from raising rates. The vacancy rate hit a 10-year low of 2.63% at the start of 2021, CoStar said.

“A 5.1% vacancy rate is not a lot of pressure for upward rents,” he said.

Moeder said his firm has worked with several clients in the last few months who have pulled out of apartment projects because of higher interest rates and increased costs. He anticipated a similar effect throughout the wider market, which could mean less construction in the coming years.

Here’s how rent breaks down by area, ranked by rent reductions:

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