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Demand for San Diego’s apartments remains largely inelastic, owing in great measure to the relative lack of construction compared with previous real estate cycles. That has spurred investment since the recession, and made apartment communities not only the investment darling in San Diego over the past decade, but also widely viewed as a sound defensive investment.
Multifamily investment in the first half of 2019 in San Diego is up 17% compared with the first two quarters of 2018. That comes as annual rent growth has slowed below the long-term average in 2019 for the first time since 2012. According to CoStar, $1.1 billion was invested in the first two quarters, matching the total from the second half of 2018.
Apartment market pricing increased 4.5% in the past year, the second biggest increase among real estate sectors in San Diego. It trailed only industrial’s 7% year-over-year pricing gain.
However, it was also the lowest annual increase since the start of 2014. Market pricing has steadily compressed since peaking at 9.6% in the third quarter of 2015.
At the same time, market cap rates have held steady at a sticky 4.6% since the middle of 2017.
CoStar anticipates that market pricing will continue decelerating over the next few years, with prices falling in 2021, while cap rates are expected to increase only negligibly.
