Multifamily Rents See Big Gains for the Year Despite Decreases in the 4th Quarter of 2018

Multifamily Rents See Big Gains for the Year Despite Decreases in the 4th Quarter of 2018

The average rent for a market-rate apartment in San Diego reached $1,794 per month in the third quarter of 2018, a 35 percent increase from the start of the economic recovery, which coincided with annual rent growth hitting 4.2 percent.

However, rent growth softened somewhat in the fourth quarter as average apartment rents fell 1 percent, the largest quarterly drop tracked by CoStar since the end of 2009, when rents fell 1.1 percent.

The high cost of living and excessively expensive new units -- averaging $2,533 per month -- have contributed to the slow down. In fact, area landlords are increasingly loosening their rent-to-income ratios, and 40 to 50 percent ratios are no longer considered taboo.

Shortly before the end of December, San Diego’s average apartment rent rested at $1,778 per month for all apartment types, an increase of 3.5 percent compared to the end of 2017, and well above the market's long-term average of a 3 percent increase. Trailing 12-month rent growth a year ago was 4.1 percent.

Annual rent growth was strongest for two-bedroom apartments. The average two-bedroom rental rate was $1,900 per month near the end of December, up from $1,834 in 2017, or 3.62 percent.

One- and three-bedroom units posted nearly equal levels of annual rent growth of 3.37 and 3.39 percent, respectively, or from $1,513 and $2,284 per month at the end of 2017 to $1,454 and $2,361 per month.

Studios, somewhat of a new phenomenon in San Diego since the recession, posted growth of 1.8 percent year-over-year. For context, only 400 studios were built in San Diego County between 2000 and 2009. In 2018 alone, more than 570 studios delivered downtown, and asking rents now average $1,454 per month in San Diego.

Annual growth in mid-quality 3-Star communities led all other multifamily classes in 2018 at 4.1 percent. Lower-quality 1- and 2-Star rents grew 3.5 percent in 2018 to reach $1,384 per month, while 4 and 5-Star rent growth tallied 2.7 percent year-over-year growth to $2,415 per month. ( CoStar Star Rating Guide)

San Diego's La Jolla/UTC submarket posted the strongest annual growth in San Diego in 2018. Apartment rents grew 6.4 percent to $2,396 per month, up from $2,252 at the end of 2017. Only apartment rents in North Shore Cities -- $2,478 per month -- and downtown San Diego -- $2,445 per month, had higher averages.

However, apartment rents in La Jolla/UTC declined in the fourth quarter by more than 2 percent. Mission Valley and Coronado/Point Loma were the only San Diego submarkets that saw bigger fourth quarter rent decreases.

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