There has been very significant upward pressure on apartment rents throughout San Diego County through 2018. San Diego Apartment rental rates have increased approximately 6%, per year on a compounded basis. Month-to-month apartment tenants typically pay rents that are approximately 10% higher than a tenant that commits to a full year lease. Apartment managers have commenced very high tenant screening standards, are requiring higher deposits, proof of apartment insurance, annual walk-through inspections, and stricter lease terms. The high cost of residing in San Diego has caused an increase in out-migration of some residents. However, the demand for rentals still far exceeds the supply.
According to Marcus and Millichap, developers are underway with 7,800 apartments with delivery dates extending into 2021. More than 40 percent of this pipeline will be finalized in the next three quarters. Most of these new multi-family projects are high end and near the urban core.
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Current 2014 population estimates published by the Department of Finance are available at the link below, for all municipalities in the State of California including San Diego, Imperial, Riverside, and Orange County. Current California Population Data By City: CAPopulation.xlsThis report provides revised population estimates as of January 1, 2013 and provisional population estimates as of January 1, 2014 for the state, counties, and cities and includes a calculation of annual percent change. These population estimates incorporate 2010 census counts. The methodology for the City and Unincorporated Area Estimates is based on housing units. The HUM is used to estimate total and occupied housing units, household size, household population, and group quarters population. Housing units are estimated by adding new construction and annexations and subtracting demolitions, and adjusting for units lost or gained by conversions. Annual housing unit change data are supplied by local jurisdictions and the U.S. Census Bureau. Occupied housing units are estimated by applying a derived civilian vacancy rate, based on 2010 benchmark data, to the estimated civilian housing units. Adjustments to census vacancy rates are made periodically. Exact data on foreclosures or other housing market indicators are not available to adjust vacancy rates. Military occupied housing units are added to civilian occupied housing units to calculate total occupied housing units. Military surveys are used to track military changes including base realignments and closures. Household population estimates are derived by multiplying the number of occupied housing units by the current persons per household. The persons per household estimates are based on 2010 census benchmark data and are adjusted by raking the current county population series into these estimates. The group quarters population is based on the Census Bureau’s 2010 SF1 File counts on group quarters and annually adjusted using reported changes for group quarters by state, federal, and local agencies. The household and group quarters populations are summed to produce the initial city population estimates. These estimates are aligned to the county estimates described below.Source: State of California, Department of Finance, E-1 Population Estimates for Cities, Counties and the State with Annual Percent Change — January 1, 2013 and 2014. Sacramento, California, May 2014.
The State of California has projected the following growth rates for San Diego County:
• Total employment is expected to increase by an average rate of 1.9 percent per year over the next five years. • Average salaries in San Diego are well above the California state average, and will remain so over the foreseeable future. Real average salaries are expected to rise by an average of 1.1 percent per year. • The fastest rates of growth will be observed in information and professional and business services. These sectors will increase by annual average rates of 3.8 percent and 2.9 percent, respectively. • Population growth is expected to accelerate, reaching 1.2 percent by 2017. Annual growth is expected to average 1.1 percent from 2014 to 2018. • From 2014 to 2018, an average of 9,600 net migrants will enter the San Diego county each year. This represents a dramatic increase over the previous five years, in which total net migration was virtually flat. • Real per capita income in San Diego is expected to increase by an annual compound rate of 2.4 percent. • Total taxable sales are expected to increase by an average of 2.5 percent. • Industrial production is expected average of 3.8 percent per year from 2014 to 2018.
Source: California Department of Transportation
The retail commercial real estate market is showing consistent improvement. We are seeing reduced vacancy, upward pressure on rents, and higher prices per square foot being paid along major commercial streets in the Spring of 2014. The most recent graphs from Voit Commercial illustrate the gradually improving market conditions throughout San Diego. We are also seeing significant downward pressure on the capitalization rates of triple net leased investments. Capitalization rates for fast food restaurants are currently under 5% for well located national chains in San Diego County.
The San Diego Multiple Listing Real Estate Data Service, SANDICOR, has successfully launched its new system Paragon this week. Paragon was designed to be mobile friendly, work on all kinds of devices and browsers, allow for multiple searches at one time, the uploading and display of slide shows, and new tools that allow appraisers to analyze data in greater detail. The new MLS system includes embedded training videos and they will do training sessions at larger real estate sales and appraisal offices on request. My appraisal office started using and testing the system when they rolled it out as a transitional system. Paragon has worked very well on our new computer systems using multiple browsers and is a major improvement over the prior MLS real estate data portal in terms of the new search tools and speed. Congratulations and our thanks to SANDICOR for such a successful and well planned launch.
Cassidy Turley Commercial Brokerage has released its San Diego 2014 Commercial Real Estate Forecast publication. This real estate market forecast discusses industrial, office, retail, apartment, hotel, and investment market trends for San Diego County. The report goes into detail about vacancy rates, absorption, and commercial rental rates. Because the report includes year end statistics, compiled from many sources, this publication is typically released in the Spring. Their Research Department always does an excellent job and this publication is constantly improving. Below is a synopsis from this report and a link to the complete report.
Commercial Real Estate Market Forecast Synopsis
Office: In 2014, the negotiating power between landlords and tenants in the Class A central core submarkets is expected to shift further supported by strengthening leasing fundamentals and moderate new construction. Countywide office vacancy is forecasted to decline 40 bps to 14.3% by the end of 2014 and Class A vacancy is expected to drop below the pre-recession level of 11.7%.
Industrial: The industrial market continued its growth in 2013 with its 10 consecutive quarters of positive net absorption. Until new speculative construction returns, the steady absorption of existing available inventory will continue to drive vacancy rates lower. The countywide direct vacancy rate is forecasted to decrease by 120 basis points to 5.9% by the end of 2014 and fall below the pre-recession level.
Retail: Continued pressure on asking rents and competitive concessions offered by landlords will support positive leasing activity in 2014 resulting in a moderate decrease in the countywide total vacancy rate from 4.5% in 2013 to 4.3% in 2014. The recovery is underway, albeit sluggish, and is much more evident in the prime coastal submarkets compared to the rest of the county. Retailers will continue to compete for the most visible locations, investors will continue upgrading existing properties, and new ground-up construction projects have begun.
Investment: The San Diego commercial real estate investment market transaction volume reached $5.1 billion in 2013, marking the 4 consecutive year-over-year gain in volume, a trend that is expected to continue in 2014. The Federal Reserve Committee’s reassurance of a highly accommodative stance of monetary policy, an increased availability of capital and easing lender standards will positively support the investment environment. Demand for top products in secondary markets including San Diego will remain strong, but will be met with a shortage of large scale offerings.
Multi-Family: Development activity has heated up, making the multi-family sector the first to fully recover and begin sustainable expansion. Fueled by pent up demand and historically low interest rate financing, investment activity in this sector is forecasted to remain fierce. With household formation and employment poised for moderate improvement, San Diego should expect to see vacancy dip to 2.5% and rental rates rise slightly by the end of 2014.
Overall, we expect 2014 to be a stable year for San Diego’s commercial real estate market. San Diego will increasingly be a relatively attractive market for investors to place their money in 2014. There will be attractive leasing opportunities for tenants/users that do not need to be in large Class A projects in the core markets.
The San Diego Economic Index published by the Burnham Moores Center for Real Estate, University of San Diego, reported gains in the final year end numbers.
Highlights of the report include: "Residential units authorized by building permits ended the year with two very strong months. For 2013, total residential units authorized increased by 46 percent to end at the highest level since 2006. The gain was largely due to permits for multi-family units, which were up almost 64 percent, compared to a 17.6 percent increase in single-family units. This left single-family units authorized at 2,565, down from more than 9,000 a year each year from 1998 to 2004. . . Both labor market variables continue to be under downward pressure. Both initial claims for unemployment insurance and help wanted advertising have been down and down sharply for three straight months. Despite these negative results, the local unemployment rate ended the year at 6.4 percent, down from the 6.9 percent rate of November and the 8.2 percent rate at the end of 2012. After seasonal adjustment to take into account hiring during the holiday season, the unemployment rate is 6.8 percent, the first time it has fallen below 7 percent since October 2008. . . The political turmoil over the federal government shutdown, the extension of the debt ceiling, and the rollout of the Affordable Care Act may have finally taken its toll on consumer confidence, halting a string of six consecutive gains for that component. . . Like the broader market averages, local stock prices were up spectacularly during the year, advancing more than 36 percent. That lagged the NASDAQ Composite (up 38.3 percent) but topped the Dow Jones Industrial Average (up 26.5 percent) and the S&P 500 Index (up 29.6 percent). . . The national Index of Leading Economic Indicators was up for the sixth consecutive month, which signals continued growth in the national economy. The “advance” estimate of GDP growth for the fourth quarter of 2013 came in at a solid 3.2 percent, down from the 4.1 percent growth of the third quarter but up sharply from the 0.1 growth in the fourth quarter of 2012."
Our appraisal office recently appraised several apartment properties in central San Diego coastal areas. The statistical data supported using a vacancy allowance in the 2.5% to 3.5% range. Rental rates show continued growth and cap rates were in the 4.25% to 4.75% range for smaller income properties of newer construction. The asking rate statistics for San Diego County multi-family properties indicate that asking prices are on track to recover to 2007 prices in 2014.
The New York Times recently published an article about the proposed pedestrian bridge in Otay Mesa, which is located in southern San Diego County along the United States and Mexico border. According to the article, "If all goes according to plan, air travelers in this region will be able to park their cars in the United States and walk across an enclosed 325-foot passageway directly to Tijuana International. The project would make Tijuana International a rare airport that would let passengers land in one country and leave in another." The project has the backing of major commercial developers from both countries and notes that "Each year, 2.4 million travelers from the United States use the Tijuana airport, even if it means waiting for hours at the border. They provide the airport with nearly 60 percent of its traffic."
Map of Proposed Airport Parking Access
A link to the complete article is here: http://nyti.ms/1cKaN4r
The following changes became effective on January 1, 2014. The Appraisal Standards Board revisions of USPAP include:
Assignment Results: The revised definition clarifies that the assignment results include opinions or conclusions and are not specifically limited to the value conclusion in an appraisal assignment or to the final opinion of the quality of another appraiser's work in an appraisal review assignment. Opinions developed about the highest and best use of the property, land value, depreciation, and other factors are also considered assignment results.
Scope of Work: The revised definition incorporates appraisal and appraisal review into the Scope of Work Rule.
Preamble: Changes were made to the Preamble that clarify when an individual is acting as an appraiser and what activities fall under what USPAP section.
Conduct section of the Ethics Rule: The Conduct section requires that an appraiser disclose any current or prospective interest in the subject property and any services performed regarding the subject property in the past three years. The disclosure to the client occurs prior to or when discovered, as well as in the certification. In assignments where there is no report, only the initial disclosures to the client are required. There are no other additional certification requirements.
Competency Rule: The Competency Rule requires that an appraiser be competent to perform the assignment, or acquire the necessary competency, or withdraw from the assignment. “In all cases, the appraiser must perform competently when completing the assignment.” has been added to this section.
Reporting Requirements: In previous versions of USPAP, there were three written report options for real property and personal property appraisal assignments. The 2014-2015 USPAP has two written report options for real property and personal property appraisal assignments : an Appraisal Report and a Restricted Use Appraisal Report. A Restricted Use Appraisal Report may only be issued if the client of the appraisal is also the intended user of the appraisal.
Standards Rule 3-5: In the past Standard 3 did not require a date of the appraisal review report. This oversight has been corrected with the addition of the date of the appraisal review report.
Standards 4 & 5: The standards pertaining to Real Property Appraisal Consulting development and Standard 5: Real Property Appraisal Consulting reporting has been retired.
For additional information: Appraisal Foundation