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Apartment Rents in San Diego Gained Steam in March

Updated: Apr 26, 2023

San Diego Matches Long-Term Quarterly Average for Rent Growth




By

Joshua Ohl

CoStar Analytics

April 4, 2023 | 8:30 AM


San Diego apartment rents were again on the rise in March after only a marginal adjustment in February. Rents grew 0.4% month over month in March, bringing first-quarter rent growth to 1.2%.


That’s right on the nose for the average rent growth during the first quarter over the past10 years, which includes a 2.4% peak in 2022 and a 2020 nadir of 0%. That could be a good sign for area landlords with the spring leasing season on their doorstep. Rent growth during the second quarter of each year over the past decade has averaged 2%.


On an annualized basis, that growth in the San Diego multifamily market

works out to 4.8%, well ahead of the long-term average of 3.4% annual rent growth.


The past few months mark a turnaround for the San Diego region. During the final four months of 2022, rents fell by more than 2% as household formation slowed and persistent inflation and rising interest rates have taken a bite out of household budgets. That has led many households to become more price conscious. Average rents had gone up by nearly $400 per month in the past two years, during which time annual rent growth peaked at 13.9%.


Some areas of San Diego saw higher growth during the first quarter than others. The neighborhoods along Interstate 15, near Mira Mesa and Rancho Penasquitos, saw rents rise more than 3.5% at the beginning of 2023. Mission Valley’s rents reversed course at the beginning of the year, with rents rising 2% during the first quarter. Both areas recaptured rent losses from the fourth quarter.


Conversely, rents in the University Town Center area continued to fall. After dropping 4% at the end of 2022, rents fell more than 1% during the first quarter. Annual rent growth there now trails every other area of San Diego at 1.3%.


Rent growth has improved even as net absorption, which tracks the change in occupancy over time, was negative during the first quarter, continuing the moribund run since the second half of last year.


The luxury category has been the only class that has seen positive absorption, not only during the first quarter but also during the past 12 months. Rent growth in this cohort during the first quarter clocked in at 1.2% after falling nearly 3% at the end of last year.


Mid-tier inventory saw the biggest increase in rents, at 2%, which erased the fourth-quarter loss of 1.4%. Yet net absorption has fallen by more than 200 units at the beginning of 2023, and more than 1,000 units in the past 12 months.


Many area landlords are breathing a sigh of relief after rents reversed course here at the start of 2023. Yet they may still be in for another bumpy ride in the coming months, particularly as economic concerns continue to stifle household formation and restrain budgets.



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