San Diego Multifamily Market - The Rise of Concessions

Oct 13, 2024

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The overall vacancy rate in the San Diego multifamily market stands at 5.2%, about 120 basis points higher than the five-year average of 4%. Vacancies are significantly higher in Class A units (6.1%) compared to Class B and C units (2.4%). In the current market, flat rent growth and rising vacancies are putting pressure on landlords to offer concessions and incentives to attract and retain tenants.

Rent Trends and Shifts

The average rent in San Diego is $2,491 per month (CoStar data), with the annual rent growth rate stalling at 0.5%. During the pandemic, rents skyrocketed, jumping 13% in 2022—equal to three years’ worth of growth in just 12 months. Many renters are now prioritizing lower rents over prime locations and amenities due to tighter budgets.

Landlords’ Strategies

In response to these market conditions, landlords are increasingly offering concessions, such as one to two months of free rent. This is being seen most commonly in Class A properties. In Downtown San Diego, where vacancy rates are 11.2%, the average rent has decreased by 1.3% to $3,076 per month.

West, a 431-unit mixed-use development, is offering two months of free rent on select units to help fill vacancies quickly.
In North San Diego County—including Del Mar, Encinitas, and Solana Beach—vacancy rates are at 5%, with rents averaging $3,537 per month. Here, landlords are typically offering one month of free rent.
A key development on the horizon to watch is Quail Meadows Apartments in Encinitas, expected to add 448 units, with 90 designated as affordable housing.
La Jolla Crossroads, a complex completed in 2022, is averaging $5,147 per month and offering tenants two months of free rent to attract renters.

Quail Meadows Apartments - the completion date still to be determined

Submarkets like Sorrento Valley, Miramar, and Mira Mesa are showing stronger signs of stability, with a 4.3% vacancy rate and average rents at $3,017 per month.

Market Outlook

Landlords are being compelled to offer concessions as wage growth has not kept up with San Diego’s rising cost of living. The multifamily market may be shifting from a landlord's market to a more tenant-friendly one. Moving forward, renters may have more leverage to negotiate favorable terms.

Landlords will need to find a balance between consistent cash flow and staying competitive within their submarkets, especially for Class A properties. I expect that Class B and C units will continue to be sought after due to their affordability.

The rise in vacancy rates and flat rent growth has contributed to a concession-driven market. It’s important to keep an eye on rent trends and economic conditions as they will continue to have an impact on the future of San Diego’s multifamily market.

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