San Diego Multifamily Market - Lucrative Deals in 2024

Jan 22

4 min read

San Diego’s multifamily market continues to experience significant activity, driven by new construction and shifts in renter demand. Over the past year, inventory grew by around 1%, with 4,200 new units completed across the metro area. Despite vacancy rates rising by 110 bps YoY, which were expected to reach 4.9% by the end of 2024, and average rent growth increasing by 0.6% to $2,825/month, the market remains robust. Since 2023, San Diego has accounted for 10% of all U.S. multifamily transactions exceeding $150M (CoStar).

In Q3 2024, multifamily sales surged by 52% from the previous quarter, reaching $713M. This increase was driven by four major transactions, each surpassing $100M. The average multifamily unit price also reached $405,380 (CBRE), making it the second-largest amount since the Fed began hiking rates in 2022.

High-Profile Transactions

In December, Mesirow Financial, a Chicago-based firm, acquired The Preserve at Melrose in Vista for $185M. The 410-unit apartment complex, built in 2015, was purchased for about $451,000 per unit. The property was previously purchased by San Diego-based MG Properties in 2017 for $134M, meaning it appreciated by 38% over the seven years. Located in North County, The Preserve at Melrose offers various amenities and is near key employment hubs (Oceanside, Carlsbad, San Marcos, and Escondido). Walker & Dunlop, who represented both the buyer and seller, highlighted the property’s growth potential due to its suburban location, limited competition, and high barriers to entry for development.

The Preserve at Melrose – 410 units, developed by Trammell Crow Residential

Another significant deal happened in October when private equity giant Blackstone acquired The Avalyn at Millenia in Chula Vista for $210M. This transaction increased Blackstone’s total number of units in San Diego to 7,195, making it the region’s second-largest multifamily property owner, only behind San Diego-based R&V Management, which owns over 11,000 units. Southern San Diego County submarkets, like Chula Vista, continue to see strong leasing activity due to their affordability compared to central markets (Downtown, Hillcrest, Mission Valley) and coastal areas (La Jolla, Pacific Beach, Del Mar, Solana Beach).

The Avalyn at Millenia – 480 units, developed by Ryan Companies

Suburban Hot Spots and Market Trends

These high-profile deals highlight the strong confidence in San Diego’s multifamily market and its long-term growth potential. Despite California losing 239,575 people between 2023 and 2024—making it the state with the largest migration loss—San Diego remains a sought-after market for investment. Key factors that come to mind include its diverse job market (life sciences, technology, healthcare, defense), limited available land due to strict zoning laws, and affordability compared to other major California cities like LA and SF.

While San Diego’s vacancy rate has increased by 320 bps since 2022, it has remained below 5% for nearly 12 consecutive years, highlighting its stability. Class A properties, specifically in urban areas with new supply, experienced the highest vacancy increases in 2024, whereas Class B and C properties have maintained strong demand. Notably, Class C units experienced a 7.6% rent increase YoY. As the median home price passed $1 million in Q2 2024, affordable rental options are in high demand. Suburban markets continue to outperform Downtown San Diego in both demand and occupancy. 11 of the 12 submarkets in the region maintained vacancy rates below 5%, compared to Downtown’s vacancy rate of around 10%.

Economic Factors and Outlook

San Diego’s employment market grew 0.5% YoY (8,500 jobs added), led by job growth in government and health services. This growth in employment continues to support demand for multifamily housing as renters seek to live near key job centers.

The rejection of Proposition 33 is expected to help with market stability and growth opportunities. Without stricter rent control measures, apartment owners and investors can raise rents more freely on buildings built after 1995. Had the law passed, it would’ve made it harder for owners to make upgrades while earning a valuable return on their investments.

Investment and Development Outlook

These large deals helped push San Diego’s multifamily total sales volume to $2.5B in 2024, surpassing the $2.2B mark in 2023. Looking ahead, developers are expected to deliver about 3,000 new units in 2025. While urban Class A properties saw the highest vacancy increases in 2024, investors may explore opportunities in Class B and C properties or suburban markets with lower vacancy rates. Recent reports indicate that rent growth in San Diego may lag behind the national average in 2025, with projections ranging between 0% to 2%.

On a national scale, 2024 saw the highest level of apartment supply since 1974, especially in Sunbelt markets. This, combined with rising interest rates, has put pressure on rent growth and occupancy rates in these regions. The Fed’s increase of the 10-year Treasury yield by 58 bps since October has made borrowing more expensive. The Fed has also signaled that interest rates will likely remain high into 2025, with only minimal cuts expected.

Sources:

Marcus & Millichap San Diego Multifamily Q4 2024 Market Report
GlobeSt. "San Diego a Magnet for Big-Ticket Multifamily Deals," December 23, 2024. https://bit.ly/3ZBGYww
GlobeSt. "Apartment Rents Could Grow by Up to 4% in Some Markets," January 22, 2025. https://bit.ly/3MwX3jw
CRE Daily - Newsletter January 22, 2025. https://newsletter.credaily.com/subscribe?ref=nGUN12g20u
GlobeSt. "San Diego Multifamily Sales Rebound 52%," January 27, 2025 https://bit.ly/3ZBGYww