22 Apr Apartment Rents in San Diego Bounce Back After Fourth Quarter Decline
APRIL 16, 2019|JOSHUA OHL
Costar Market Insights: University Town Center Remains the One Area Where Apartment Rents Continued to Trend Lower During the First Quarter
After average apartment rent growth declined throughout San Diego in the fourth quarter of last year there were concerns that it could be the beginning of a trend. However, it appears apartment rents have mostly reversed course in the first quarter of this year.
Although rent losses were confined to last year’s fourth quarter, the slowdown showed up in CoStar’s daily asking rents before the end of August. That’s when trailing 12-month rent growth was tracking north of 4%.
By the end of 2018, annual rent growth in San Diego recorded at 3.6%, with 2018’s fourth quarter registering a 0.9% loss – the largest quarterly dip since the recession. Seasonality had largely been confined to the final quarter over the past several years, and this was the first time that the decline showed up during the middle month of a third quarter.
But 2019 started off well, and rents, on average, erased the fourth quarter losses. Average rents started last October and this April at $1,791 and $1,790 per month, respectively. Rents picked up 0.8%. Each of the star-rated segments grew in near unison, with 3 star properties edging the others at 1% growth.
Annual rent growth through the end of this year’s first quarter registered 2.7%. It was the first time that annual growth had fallen below the long-term average of 3% since 2012.
La Jolla/UTC was the only multifamily submarket where rents continued to lose ground at the beginning of 2019. In fact, the -2.2% rent drop in the fourth quarter was followed by a 2.8% drop during the first three months of the year. The mid-quality 3-star apartment buildings lost the most ground in terms of average rent growth, falling 3.7%.
Although the submarket is unrivaled in terms of employment, education, shopping and outdoor amenities, the high average rents in the area are increasingly out of reach for the large number of college students who rent apartments here, averaging $2,331 per month. Area landlords in more affordable submarkets to the south, including in neighborhoods near Balboa Park, have noted a discernable uptick in applicants from the UTC area.
While rent growth has slowed in UTC since the end of last year, a turnaround might be on the horizon. Quarterly rent growth during second quarters in the submarket, since 2015, has averaged a whopping 6.2%.
The only other submarkets that posted rent losses larger than 2% at the end of the year, Mission Valley and Coronado/Point Loma, each rebounded with a positive first quarter. Gains were 1% and 1.4%, respectively.
And San Diego as a whole has performed strongest during the second quarter. The average growth rate during second quarters since 2015 is 2.4%. With the summer leasing season nearing, landlords can be expected to boost rents in anticipation of the increased summer demand.